As provided by the Mexican Federal Constitution and the Federal Labor Law (FLL), employees are entitled to receive profit participation on their employer’s profits every fiscal year. Ten percent of the company’s taxable profit (PTU) must be distributed among the employees in order to comply with this legally mandated obligation.
As per the Constitution, FLL, and Income Tax Law (ITL), the applicable rules are the following:
- A joint commission of an equal number of employers’ and employees’ representatives (PTU Commission) must determine the distributable amount of profits to the employees.
- Per the ITL, the fiscal year runs from January 1 until December 31. Companies have to file their tax returns within three months after the end of the fiscal year (January through March).
- Once the tax returns are filed with the tax ministry, an employer has a period of 10 days in order to deliver notice and copies of the tax returns to the employees. Employees have the right to express any doubt regarding the tax returns or to request further clarification.
- According to the FLL, once the tax returns are rendered, the employer, along with the PTU Commission, has 60 days thereafter to determine the amount that each employee will make as PTU and the process for delivering those amounts to all the employees.
- Employers have until May 30 of each calendar year to comply with payment of PTU obligation towards their employees.
Key Responsibilities of the Joint Commission
- Prepare the payable PTU for each employee, based upon:
- the annual fiscal income of the employer;
- the attendance records of the employee; and
- the payroll list of employees for the relevant calendar year (fiscal year).
- Ten percent of the profits must be divided in two equal parts in order to determine the payable PTU:
- The first part is to be equally divided between all the employees, based on the days worked in each calendar year by each employee, regardless of the salary the employee earned.
- The second part is to be divided in proportion to the employees’ accrued wages and/or salaries in the last fiscal year (some caps apply).
- Once the payable PTU is prepared for the employees, a draft of a table with the amount of PTU should be communicated to the employees.
- Subsequently, employees have 15 days to file any objections regarding said draft. If there are any objections, the PTU Commission has 15 days to solve each of the objections. If the PTU Commission fails to rule on the employees’ objections, those issues will be resolved by a labor inspector.
- Once the abovementioned objections are solved, or if none are filed, the PTU Commission shall determine the final amounts of PTU.
Exceptions From PTU Payment
The following categories of employers and employees are not required to receive or provide PTU payment:
- Employers during their first year of operations
- New companies engaged in the manufacturing of a new product during the first two years of operations
- Mining and extracting companies during the first year of operation as well as in exploration period
- Nonprofit associations engaged in humanitarian activities
- The Mexican Social Security Institute and those public institutions engaged in cultural, assistance or benefactor activities
- Those companies with profits lower than the minimums determined by the Ministry of Labor and Social Welfare
- Directors, general managers, and administrators (the highest tier of employees at any entity)
During maternity leave or leave due to occupational risk, employees will be considered as active employees for PTU payment.
Statute of Limitation and Fines
The statute of limitation to file any claim regarding PTU is of one year. The yearlong term commences on the date on which the benefit is enforceable.
The FLL sets forth that if an employer does not comply with the regulations regarding employees’ PTU payment, it could be subject to a fine of 250 to 5,000 times the measure and update unit value (UMA $73.04 pesos).