Overview

A fixed percentage of a company's annual profit needs to be shared with its employees, as per the Mexican Federal Labor Law.

The National Profit Sharing Commission established the percentage of profit to be shared as 10% effective, February 3, 2009. The employer and employees' representatives conducted meetings to fix the amount to be shared, and also set a clear process. The Profit Sharing payment, known as Participación a los Trabajadores de las Utilidades (PTU) in Spanish, needs to be paid 60 days after the employer has filed the Annual Tax Declaration (March 30), this means before May 31.

Profit Sharing is a two-step process, which includes calculating the profit amount and making the payment. Once the profit amount to be shared has been agreed, it is shared with the employees. The amount is computed and divided into two equal portions, which include:

• Day’s portion: Computed based on the number of days worked by each employee during the fiscal year.

• Earnings portion: Computed based on the salaries earned by each employee in the fiscal year.

Employee Eligibility for Profit Sharing

The Mexican law states that the PTU employee eligibility should meet these conditions:

• Permanent workers who have worked any time during the previous fiscal year (January 1 to December 31) and earned any wages.

• Temporary workers must have worked at least 60 days in the fiscal year.

• Directors and board members are excluded from PTU.

Profit Sharing Calculation Criteria

The Mexican law states the criteria to compute the PTU earnings portion, which also depends on the employer business practice:

• For employees who have a salary basis or fixed earnings, the daily salary will be used.

• For employees who earn only variable earnings, the average earnings in the year is used to compute the daily salary.

• For employees who earn a mix salary (fixed and variable), only the fixed portion will be used.

Note: In all these cases, the basis to compute the PTU earnings portion is capped to the highest union employee daily salary plus 20%.

If the legal employer has multiple plants or branches, the union employee cap may be set per each of these business units.

Note: The amount of the profit share will have as a maximum limit three months of the worker's salary, or the average of the profit sharing paid in the previous three years; the amount that’s most favorable to the worker will be applied.

Profit Sharing Calculation Procedure

This flow chart depicts how profit sharing is computed.