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Employee Profit Sharing Plan

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The idea of an Employee Profit Sharing Plan (EPSP) [in Spanish: Participación de los Trabajadores en las Utilidades (PTU)] for Mexican companies uses article 123 of the Constitution as its legal basis, which is also the basis for the Mexican Federal Labor Law [in Spanish: la Ley Federal del Trabajo (LFT)]. This law establishes that employees will have the right to participate in the profits of a company that correspond to 10% of the net earnings in accordance with the Income Tax Act [in Spanish: la Ley del Impuesto Sobre la Renta (LISR).

Therefore, to obtain this base, we must consider what is established in the Income Tax Act. The mechanics to obtain the net earnings are described as follows:
tabla1_employee_profit_sharing-102353.png
The previous results (Taxable Profit or Loss), is applied at the current rate of 10%. This amount is the EPS that will be distributed among the employees as shown in the following example:
tabla2_employee_profit_sharing-102353.png
Mechanics of Distribution

Articles 123 and 124 of the Mexican Federal Labor Law establishes the procedure for calculating the amount of EPS to be distributed to each employee. The text mentions the following:

Article 123 of the Mexican Federal Labor Law- “…The distributable profit will be divided into two equal parts:

The first will be shared equally among all the employees, taking into consideration the number of days each employee has worked during the year; independently of the amount of salary.

The second will be shared in proportion to the amount of accrued salary for the work carried out during the year. The following example is shown for the purposes of illustrating the distributable EPS:

Part 1→ Distributable amount based on days worked (50%): $ 60,000.

Part 2→ Distributable amount based on wages paid (50%): $ 60,000.

Total distributable amount of EPS (100%) $120,000.
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In addition, Article 127 of the Mexican Federal Labor Law contains limitations that must be considered in order to carry out the EPS payment, and establishes the following:

The rights of employees to participate in EPS distribution will be adjusted according to the following regulations:

I. Directors, managers, and general managers will not share in the earnings.

II. Other trusted employees will share in the earnings of the companies, but if their earned wage is greater than that of what is associated with a highly-paid unionized worker in the company, than the employee for payroll purposes, in the absence of this and with the same characteristics, can consider this salary increased by twenty percent as the maximum salary.

III. The amount shared among employees for services to people whose income is derived exclusively from their work, as well as for those who engage in property management that derives income from debt recovery and interest, will not exceed one month’s salary.

IV. Working mothers in the pre-and postnatal periods, as well as workers who are victims of occupational hazards during a period of temporary incapacity, will be considered to be active staff.

V. For the construction industry, after determining that the workers have the right to share in the allocation, the Commission, as referred to in Article 125, will adopt the measures that it deems appropriate for its establishment.

VI. Domestic workers will not participate in profit sharing.

VII. Temporary workers will have the right to share in the profits of the company when they have worked at least sixty days during the year.

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