PTU in Mexico 2024: The Ultimate Guide
Do you plan to hire employees in Mexico? Check out our guide on PTU in Mexico to understand how profit sharing works and make sure you're compliant.
Justworks is a technology company that levels the playing field for all small businesses. Through our software and as a partner, we help our customers take care of their teams, streamline their operations, and navigate the complex aspects of managing a workforce with confidence.
When small businesses decide to hire talent in Mexico, many of them are confused by PTU in Mexico, or employee profit sharing.
What is PTU (profit sharing) in Mexico?
PTU, also known in Mexico as employee profit sharing, is a constitutional right for employees who have worked at least 60 days for a company. According to Mexico’s Federal Labor Law, an employer must divide 10% of their profit equally among all employees.
Profit sharing payments are capped at three months of an employee’s salary and prorated for employees who have been with the company for less than a year.
The goal of PTU is to reward employees for their hard work and valuable contributions to the company.
Like social security taxes, PTU is a required part of navigating payroll in Mexico.
How does profit sharing work?
In Mexico, profit sharing, like social security, is a constitutional right and mandatory benefit.
Here’s how it works:
Per the constitution, a National Commission establishes what percentage of profits companies must pay their employees. This is determined by government officials and labor experts.
Businesses that meet the requirements for PTU (in most cases, businesses that have been operating for more than two years) must pay 10% of their taxable income to their employees. This percentage is subject to change.
Per law, employers in Mexico must explain how their profit-sharing calculations are made by giving their workers an annual report. The profits are determined by the annual Income Tax Return (ISR) with the Tax Administration Service (SAT).
Employers must make the previous year’s PTU payments by May 30th. If you’re a sole proprietor or another single-member business, then the deadline is June 29th.
In April 2024, the Mexican Supreme Court ruled that PTU profit sharing of at least three months of the employee’s base salary or the average amount of profit sharing they received over the past three years, whichever is more, is constitutional.
You can read more about PTU in Fraction IX, Section A of Article 123 in the Mexican Constitution. You also check out Chapter VIII for more information.
What businesses must participate in Mexican profit sharing?
In most cases, PTU is a right, or mandatory benefit. If your business is registered with the tax authority and has employees, then you are required to pay profit sharing in Mexico.
According to the Constitution, certain organizations and businesses are exempt from PTU, including:
Businesses that are newly formed and have been in business in Mexico for fewer than two years and are actively building a new product or offering a new service. After the first two years, employees will receive PTU payments
Employers that are newly formed and in their first year of operation
Employers with a taxable profit that does not meet their industry’s threshold, as outlined by the Department of Labor and Social Services
Nonprofit organizations
Government institutions, including organizations with cultural and charitable missions
Mexican Social Security Institute
Mining and extraction companies (during the exploration and development phase)
Private assistance businesses
If your business is profitable, you need to ensure that you are compliant with the PTU laws. Evading PTU payments can lead to steep fines and penalties.
How to determine if your employees are entitled to PTU
Most seasonable and full-time employees are entitled to PTU, given they have worked at least 60 days in the calendar year. For employees that did not work the full year, payments are prorated.
Certain workers are exempt from PTU, including:
Directors
General managers
Board members
Partners
Domestic employees, like janitorial workers
Workers who have spent less than 60 days with the company
Technicians
Artisans
Others that provide temporary services
Board members
If you fail to enroll an eligible employee in your company’s profit sharing program on their first official day of employment, your business could be fined upwards to $18,000 USD.
How employers can structure their compensation and benefits packages
Employers in Mexico must take PTU into consideration when determining compensation and benefits packages further. To make the process smoother, employers should take PTU, stock options, private health insurance, performance bonus, and other forms of variable compensation into account when determining each employee’s base salary.
However, you cannot use PTU to pay for other bonuses or incentives unless that is clearly spelled out in the contract.
Calculating profit share
In theory, you take 10% of your profits and divide them among employees. In practice, dividing PTU can be more complicated.
To calculate PTU in Mexico, divide the profits into two equal parts.
The first part is distributed equally among employees (this is prorated for employees who worked less than 1 year).
The second part of the profits is based on the employee’s base salary–the payout is divided in proportion to the worker’s annual salary or wages.
In general, workers with higher salaries will receive a higher PTU payment.
Exceptions to the 10% rule
In practice, payments can become more complicated, since you need to take into account 1) how long an employee has worked for your company and 2) if the PTU exceeds a certain proportion of their salary.
If an employee worked for less than 1 calendar year but 60 days, their PTU will be prorated.
If the PTU is higher than an employee’s three months of salary on the date of payment, then the PTU is capped at three months. Commission payments should not be counted towards salary.
Surplus profit
If, after completing the above calculations, your company has a surplus amount, then this profit is considered surplus profit. The company can re-invest these funds into the business.
When is PTU paid?
The deadline for employers to pay PTU is May 30 or within 60 days of filing the company’s annual tax return for the previous year. For “natural persons” with business activity, the deadline is June 29.
What is the difference between profit sharing and retirement plans?
Many US employers think that profit sharing is like a 401(k) or other retirement plan, but that is not the case.
401(k) contributions are not directly related to the company’s profits (technically speaking, they are deferred employee wages). They aren’t legally required, either.
In the US, profit sharing looks different. It generally takes the form of end-of-year performance bonuses, stock options, and equity.
Contractors and PTU
Independent contractors do not receive profit-sharing payments, even if they have worked 60 days for the company. However, misclassifying workers as contractors to avoid PTU payments can lead to lawsuits and fines.
Not sure if you’re misclassifying workers in Mexico? Partner with Justworks’ global EOR to help navigate payroll in Mexico.
PTU and foreign employees
Given that they meet all of the requirements, foreign employees living and working in Mexico are entitled to receive PTU benefits.
Justworks Can Help Manage Hiring in Mexico
Choosing the right EOR to help you expand your business internationally can be a game changer. Justworks’ global EOR services enables small businesses to hire international employees quickly, pay them in the local currency, and provide local benefits. It’s hard to know where to start and what to put in place abroad to protect business and your employees. At Justworks, we have in-country legal teams and entities set up to ensure that your payroll is protected and that you’re remaining compliant abroad.
From access to top talent pools around the world to streamlined international hiring processes, the advantages of working with an EOR (and using Justworks) are undeniable. Get started today.
FAQ
What is PTU payment in Mexico?
The PTU payment is a mandatory requirement in Mexico where businesses have to share a portion of their profits with employees. Employers are required to pay 10% of their taxable income to employees within 60 days of filing their taxes each year.
Is profit sharing required in Mexico?
Yes, profit sharing is a statutory requirement in Mexico. Employers that fail to comply with employee profit sharing may be fined up to 18,000 USD.
How does Mexican profit sharing work?
Mexican profit sharing works by equally dividing 10% of the businesses total taxable income by the total number of employees eligible for profit sharing as part of their compensation. Profit sharing takes into consideration the number of days worked in proportion to the employees’ total salary.
What is PTU in accounting?
PTU accounting is an abbreviation of Employee Participation in Company Profits (Participación de los Trabajadores en las Utilidades de la Empresa). This means that you’ll need to understand and comply with profit sharing as part of your payroll and accounting procedures in Mexico.
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