Understanding Profit Sharing in Mexico
It’s that time of year again when companies (legal entities) are obligated to distribute profits, known as “utilidades,” to their employees. This practice is a constitutional right enshrined in Article 123 of the Federal Labor Law, acknowledging workers’ crucial role in generating company profits.
Profit Sharing: A Legal Obligation
Profit sharing is a legal obligation for businesses to share a portion of their annual earnings with their employees. Companies must complete their annual tax declaration and determine the profit distribution to employees based on reported profits.
Distribution Timeline
- For employees of legal entities (companies):
- The distribution must be completed by May 30.
- For employees of physical persons (individual employers):
- The distribution deadline is June 29.
The profit share, currently set at 10% of net company profits by the National Commission for Worker Participation in Company Profits, is divided based on the number of days worked and half of the annual salary.
Who is Eligible for Profit Sharing?
Eligibility applies to workers who have labored at least 60 days in companies with net profits exceeding 300,000 pesos and have been employed for over a year. This right extends even to former employees who worked more than three months in the previous year.
What Happens if Profit Sharing is Not Paid?
If an employee does not receive or receives incomplete profit sharing, they have one year from the deadline to file a claim. In 2024, the Profedet reported 24,982 consultations, 10,091 conciliations, and 25 lawsuits related to profit sharing.
Key Questions and Answers
- Who receives profit shares? Employees who have worked at least 60 days in companies with net profits over 300,000 pesos and have been employed for more than a year.
- What if I’m no longer employed by the company? Former employees who worked more than three months in the previous year are still eligible for a portion of the profit sharing.
- What happens if I don’t receive my profit share? Employees have one year from the deadline to file a claim for unpaid or incomplete profit sharing.
