As May 30, 2023, approaches, so does the deadline for employers in Mexico to comply with the obligation of calculating and distributing profit-sharing (PTU) payments to employees. The following answers to nine frequently asked questions may help employers comply with the PTU requirements.
- All employers—with limited exemptions—are required to distribute PTU to their employees.
- General administrators, managers, directors (highest tier), and employees who worked fewer than sixty days in the corresponding fiscal year are not eligible to receive PTU payments.
- Employers in Mexico must comply with the profit-sharing requirements by May 30, 2023.
Question 1. What is PTU?
Answer 1. PTU is a mandatory benefit that most employers must comply with. The payment of PTU will consider an employer’s taxable income (according to the applicable annual tax return) for the corresponding fiscal year.
A base of 10 percent of such taxable income has been established for purposes of the payment of PTU. Once the amount of 10 percent for the payment of PTU has been determined, it must be divided into two equal portions (50 percent each), considering:
- the number of days worked by each employee during the corresponding year, and
- the salary earned by each employee (caps apply) during the corresponding year.
Q2. Who is mandated to pay PTU?
A2. Pursuant to the Mexican Constitution and the Federal Labor Law (FLL), all employers in Mexico are mandated to distribute/pay PTU to their employees.
Q3. Are there any exemptions from the requirement of paying PTU?
A3. Yes. The following employers are exempt from distributing/paying PTU:
- Newly incorporated entities (during their first year)
- Newly incorporated entities manufacturing new products—up to two years
- Mining companies during exploration period
- Entities providing humanitarian and social assistance
- Mexico’s Social Security Institute
- Public institutions engaged in cultural, assistance, or charitable activities
- Entities with profits under the minimums determined by the Ministry of Labor and Social Welfare
Q4. Are all employees entitled to receive PTU?
A4. Generally, yes. However, there are some exemptions, including:
- general managers, administrators, and directors (highest tier); and
- employees who worked fewer than sixty days during the corresponding fiscal year.
Q5. How can I determine who is a general manager, administrator, or director?
A5. The FLL does not provide a specific definition of “general manager,” “administrator,” or “director.” However, what the legal criteria has established is that directors, managers, and other individuals who render direction and administration activities for the employer will be considered. We have defined them as the highest-tier employees—those who do not have any others to report to in Mexico, but the board and/or the shareholders meeting.
Q6. Do I have to comply with a formal process? What happens if I skip this part?
A6. Yes. Every employer needs to comply, regardless of whether PTU was generated or not, or if the entity employs three individuals, the following requirements apply:
- The employer must integrate a joint commission (PTU commission) with an equal number of employer and employee representatives who will determine the distributable amount of profits for each employee.
- Ten days after filing the annual tax return, the employer must share it with employees with the purpose of informing them as to whether PTU was generated (or not generated).
- PTU must be paid by May 30 of each year or the employer must inform employees that there was no PTU to pay;
- Employers must analyze and determine a route for those employees who worked during the applicable tax period and whose employment was terminated.
Employers that do not meet the requirements could be subject to a fine of 250 to 5,000 times the measure and update unit value (UMA $103.74 pesos) (approximately USD $1,440–USD $28,816) upon an inspection by the labor authority to the employer or upon a claim filed by an employee against the employer demanding PTU payment.
Q7. Is there a PTU payment cap? How does the cap work?
A7. Effective May 2022, in the event the PTU individual amount exceeds or hits three months of an employee’s salary, a cap will be applicable. In that scenario, the employee will be entitled to receive three months of salary or an average of the amounts received in the last three years for PTU, whichever is more favorable.
Q8. Do employees have a statute of limitations for demanding PTU payment?
A8. The statute of limitations to file any claim regarding PTU is one year. The yearlong term commences on the date on which the benefit is enforceable.
Q9. What happens with PTU that was not distributed, collected, or claimed?
A9. All amounts that are not distributed, collected, or claimed within the corresponding statute of limitations must be added to the company’s profits the next year for sharing.
The Mexico City office of Ogletree Deakins will continue to monitor developments in the labor and employment laws of Mexico and will post updates on the firm’s Cross-Border blog as additional information becomes available. Important information for employers is also available via the firm’s webinar and podcast programs. For additional updates, please follow us on Twitter and on LinkedIn.