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Mexico: Note on Department of Labour Guide on Compliance with the Payment of PTU Profit Sharing

Authors: Oscar De la Vega Gómez and Ricardo Martínez Rojas

On 25 March of this year, the Department of Labour and Social Welfare published a “Guide for Compliance with Obligations on Profit Sharing Matters.”

From this document, we can highlight the following information:

The spirit of the reform on subcontracting matters seeks compliance with the rights of all workers and that companies hire personnel directly, without resorting to the practice of subcontracting, explicitly prohibited by Law.

As a result of the reform, the text of Article 127 of the Federal Labour Law was amended, emphasising the right of workers to participate in profit sharing, acknowledged in the Political Constitution of the United Mexican States; thus, Section VIII was added to Article 127 with the objective of establishing the basis for the application of the amount of profit sharing and introducing a fixed ceiling with the limit of 3 months of the worker’s salary, or the average of the profit sharing of the last 3 years, whichever is most favourable to the worker.

These amendments do not change the mechanism established both in the Federal Constitution and in the Federal Labour Law, nor the formulae used in their calculation; therefore, all of those established in Article 125, the exceptions included in Article 126 and the provisions of Sections I to VII of Article 127 of said Law, will continue to be used.

In regard to this portion of the Guide, it is our understanding that:

  • The percentage will continue to be 10% of the company’s taxable income, as determined by the Sixth National Commission on Employee Participation in Company Profits.
  • A mixed commission comprised of representatives of the employer and representatives of the workers will determine the individual profit sharing to be received by each worker.
  • The distributable amount will be divided into two equal parts, one factor will be calculated based on the number of days worked and the other half by applying a factor based on the received salary, understanding that the salary is the one corresponding to the daily wages.
  • Non-union workers will participate in profit sharing, with the exception of the general director, manager or administrator of the company.
  • For the purposes of calculating the salary based on the daily wages of non-union employees, this salary cannot exceed the highest union or base worker’s salary, by more than 20%.
  • Once the individual calculation of the amount to be received by each individual worker as profit sharing has been made, if 10% exceeds the amount of three months of his salary, this will be the limit of what the worker can receive.
  • If the company has a history of profit sharing in previous years that exceeds 3 months of the workers’ salaries, this will be the limit to be applied, if it is more favourable to the workers.

Relevant Notes

The criterion of the Department of Labour, according to the Guide, is that the seniority of the worker does not make a difference in the application of this limit of the average of the profits of the last three years; that is, if a worker joined the company in the last year, but the company has distributed profit sharing that exceeds three months of salary during the last three years, this is the limit that will apply to the newly hired worker.

Another aspect that needs to be highlighted is the criterion by the Department in the sense that the limits for individual profit sharing established in Section VIII of Article 127 of the Law are only the minimums, as the participation determined by the Sixth Commission is of 10% and, therefore, in the event that a company wants to grant the 10% without applying the limits, it can do so by reaching a mutual agreement by way of collective bargaining and it will maintain the legal nature of the PTU [Employee Profit Sharing].