MANDATORY PROFIT SHARING

Employers in Mexico are obligated to pay workers a share of the profits based on their annual tax declaration. This obligation is detailed in Chapter VIII of the Labor Law. Workers have the right to object to the annual declaration.

See: REGULATION OF ARTICLES 121 AND 122 OF THE FEDERAL LABOR LAW  (Regulation for profit sharing)

CONSTITUTION

The right of workers to participate in the profits of a company is established in section IX of Article 123A of the Political Constitution of 1917. The Constitution establishes the following in order to accomplish this:
a) A National Commission made up of labor representatives, employers, and the government, sets the percentage that must be shared with workers. (10%)
b) The National Commission performs studies on the general condition of the National economy. This Commission is supposed to take into account industrial development, and reinvestment of capital.
c) The National Commission can review the percentage when the studies justify it.
d) The law can exempt new companies from the obligation of profit sharing during a limited number of years.
e) The amount of taxable income for purposes of profit sharing is arrived at by using the provisions in the current Income Tax Law (ISR). Workers can make objections to Hacienda.

The Federal Labor Law, Chapter VIII,
PARTICIPATION OF THE WORKERS IN THE PROFITS OF BUSINESS Articles 117 ? 131 covers profit sharing details: calculation, criteria, and division of profits.

FAQ ABOUT MANDATORY PROFIT SHARING IN MEXICO

Who has the right to profit sharing?
All workers receive their share of the percentage determined by the National Commission for the Participation of Workers in the Profits of Business. (Art 117)

What is considered the base profit?
Taxable income according to the Income Tax Law (Art.120 of the Labor Law)

Do employers have to provide workers with documents describing how the calculation is made?
The employer has a period of ten days from the presentation of his annual tax declaration to deliver a copyto the workers . The copy is delivered to the Union, or representative of the majority of workers.

When does the Profit share have to be paid?
Profit sharing for workers must be paid sixty days following the date of the payment of annual tax declaration, even if the workers have filed an objection.
For companies the date to pay workers is May 31. For individuals (sole proprietors) that are not corporations the day is June 30. (Art 122 of the Labor Law)

What factors are taken into consideration?
The profit share is divided into 2 parts. The first part is paid equally to all workers, taking into consideration the number of days worked by each one during the year. The second part is divided in proportion to the wages paid during the year.

What employers are exempted?
New companies are exempted during their first year of operation. New companies are exempted who are manufacturing a new product during the first two years. Mining companies are exempted during the exploration period. Humanitarian non-profit organizations are exempted.

What are the general rules for profit sharing?
Directors, administrators, and general managers of companies do not participate in profit sharing. Workers of confidence depending on their salary are included. Women on maternity leave or disabled workers are considered to be active workers. Domestic workers do not participate. Temporary workers will have the right to receive a share if they have worked at least 60 days.