Employee Profit Sharing (PTU) is a constitutional right, created as a means to redistribute the wealth generated by the efforts of the employees; a retribution for their productivity. Through it, a percentage of the taxable profits is distributed among the workers who have worked during the fiscal year, without giving the worker any rights over the company for which he/she works.
This right is established in Article 123-A Section IX and Section VIII of the Federal Labor Law; therefore, since it is a constitutional right, it is essential to make the distribution in a fair and legal manner.
Who is obligated to distribute PTU?
All employers who had employees in their charge during the fiscal year and who had taxable profits are subject to PTU distribution, except for certain exceptions provided by law, which are as follows:
- Newly created companies during the first year of operation;
- Newly created companies, dedicated to the production of a new product, during the first two years of operation.
- Extractive companies during the exploration period
- Non-profit private assistance institutions, recognized by law (except when they have income from the sale of goods or provision of services and which is greater than 5% of their total income);
- Those with less capital than the amount designated by the Ministry of Economy
However, the law clarifies that in some cases companies are not considered as newly created, such as in the case of mergers, transfers, when they change their corporate name, since it is only a restructuring of the company and not a real creation.
Who is entitled to receive PTU?
All employees who have rendered subordinate services through a salary are entitled to participate in the distribution of profits for the year. In this regard, several assumptions are clarified in which there could be confusion, but they must be considered carefully:
- Temporary workers are considered for PTU payment as long as they have worked at least 60 days in the same company;
- The directors, administrators and general managers of the companies do not participate in the profits;
- The maximum salary for trust personnel is the salary of the highest-paid unionized or permanent employee plus 20% of such salary (increased salary);
- Foreign employees qualify;
- Working mothers in the pre- and post-natal period, as well as workers who are victims of occupational hazards during the period of temporary disability, should be considered as workers in active service;
- Domestic employees do not qualify.
Calculation of employee profit sharing
Although its calculation has not undergone significant modifications since its establishment, in April 2021 some modifications were established, derived from the amendments to the Federal Labor Law, regarding outsourcing. The calculation method must be made as follows:
- Of the total PTU to be distributed, 50% is set aside, which is distributed in equal parts according to the total number of days worked or not, but with pay that all employees have had during the fiscal year.
- The remaining 50% is divided according to the salary obtained by each employee (not including other payments). In the event that the employee receives a mixed salary, the average salary received plus the average of the variable salaries received during the year must be considered.
Up to this point, the calculation remains the same, except for the most recent modifications, which establish a limit on the distribution in two situations:
In the first, three months of salary received by each employee is considered. In the second, the average of the employee profit sharing received by the same employee in the last three fiscal years is considered. The PTU to be distributed should be considered as the one that most benefits the employee of these two situations.
To clarify the above, I propose the following examples:
- If, derived from the calculation of PTU, a total of $20,000 must be paid to employee “X”; his salary is $10,000 per month and the average PTU received in the last three years is $18,000. In this case, the amount that most benefits the employee is the amount resulting from calculating three times his monthly salary: 3 X $10,000=$30,000, and since this amount exceeds the PTU to be paid, then there is no limit and the $20,000.00 is given.
- Another case would be employee “Y” who has a monthly salary of $10,000 and an employee profit sharing of $40,000, has been working for less than three years, so only three months of salary are considered: 3X$10,000=$30,000. In this case, although the maximum to be distributed is $40,000, he would only receive the $30,000 mentioned above.
Currently, there is no legal framework that determines what to do with the undistributed surplus, but dividends can be declared (since it is an undistributed profit) or it can remain as liabilities pending payment as long as there is a specific regulation in this respect.
Another possibility is to distribute this surplus among the employees (so that they receive 100% of the PTU determined in the fiscal year), but in order to do so, the Commission (with representatives of both the employer and the employees) must document that the distribution of 100% of the PTU is appropriate and in this way the surplus PTU will not be considered as a “bonus” for the employee for Social Security purposes.
Finally, it is important to highlight that as a means of wealth redistribution, the PTU has been an excellent incentive for employees, but recent updates on the subject may cause discontent because in many cases the amount that must be effectively distributed among employees is reduced because it is no longer as equitable as it had been until fiscal year 2021.
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