[co-author: María José Bladinieres]

On April 3, 2024, the Mexican Supreme Court confirmed the requirement to pay up to three months of base salary for profit-sharing (PTU) payments.

Quick Hits

• The Mexican Supreme Court ruled in favor of the constitutionality and therefore the legality of the cap to PTU payments issued by the Mexican Federal Labor Law (FLL).
• According to the FLL, the PTU cap is calculated as either three months of the employee’s base salary or the average amount of profit sharing payments that the employee has received per the prior three years—whichever is more favorable to the employee.
• Profit sharing payments are due to employees no later than the end of May every year

Supreme Court´s Profit Sharing Ruling

In 2023, an amparo (Mexican appeal process on constitutional rights) was filed to question the constitutionality of the cap established in the Mexican Federal Labor Law (FLL) regarding PTU payments. The FLL determines payments depending on either three months of the employee’s base salary or the average amount of profit sharing payments the employee received in the past three years—whichever is more favorable to the employee. The amparo was sent to the Mexican Supreme Court, and on April 3, 2024, the Supreme Court made the following determinations as part of its final ruling:

1. The cap for PTU payments is constitutional.
2. The three-month cap is not absolute. The cap may take into account the average amount paid to employees in the same category, position, level, or title that the relevant employee held during the last three years that the employee rendered services to the employer.
3. The cap and its calculation must protect employees’ rights.

Supreme Court rulings in the Mexican judicial system have wide applicability. Thus, employers are required by this ruling to comply with the FLL by applying its caps for the payment of PTU.

Important Considerations for 2024 Profit Sharing

Profit sharing payments are due to employees no later than May 30, every year. Here are some considerations for Mexican employers that need to comply with this obligation:

1. All Mexican employers are required to comply with the formal processes regarding PTU payments, regardless of whether they generated PTU.
2. Employers must share their annual tax returns with employees within ten days of filing.
3. Employers must implement a joint commission in charge of determining PTU payments, regardless of whether they generated PTU to be distributed to employees.
4. Employers are required, through such a joint commission, to determine individual PTU payments, depending on whichever scenario is more favorable to employees.
5. When PTU is generated, companies that act as employers must make their PTU payments by May 30, 2024, at the latest.
6. Failure to duly pay PTU and/or comply with the formal processes regarding PTU could result in labor inspections and fines imposed by the Labor Ministry.
7. The statute of limitations for employees to file any claim regarding PTU payments is of one year after the right to claim is acquired, meaning from May 31, 2024, or June 30, 2024, depending on the type of employer.
8. General administrators, managers, directors (highest tier employees), and employees hired for a definite term who worked fewer than sixty days in the corresponding year are not eligible to receive PTU payments.