The distribution of profits is the process by which a company proceeds to distribute the profits produced throughout the year with the performance of its activity. In certain countries, this distribution is established by law.
Profit sharing, therefore, is nothing more than profit sharing. This distribution is made through a payment, made by the company, to the employees. A payment that, incidentally, must be in accordance with the earnings obtained throughout the year, as well as what is agreed in the corresponding legislation. In other words, very similar to the distribution of dividends, it is the delivery of a percentage of the profits to the workers, in order to distribute the profits.
These deliveries, in certain countries, are considered mandatory by law.
The percentage varies depending on the earnings, the agreement and the legislation.
Characteristics of profit sharing
If a company must carry out profit sharing, we must know the following characteristics:
- The winnings to distribute are divided as follows. Workers are paid, proportionally, a payment adapted to the days in which they have performed their duties. While, at the same time, a proportional and equitable payment is delivered to all.
- The worker must have worked at least 60 days to qualify for said payment.
- In Mexico, for example, new companies should not make profit sharing, so they can use it for reinvestment.
- Likewise, in Mexico, too, those temporary or casual workers are excluded from profit sharing.
- To receive such payment, workers must be up-to-date with Social Security.
- The payment is integrated into the salary.
- The company must provide the workers with a copy of the tax declaration, in order to carry out a transparency exercise.
Who has to do the profit sharing?
Countries that specify it in their legislation must require companies to share profits.
However, this distribution is made based on the profits obtained. Therefore, the tax returns filed, and that determine whether a company has obtained a profit or not, determine whether the company must carry out the distribution of profits. Or, on the contrary, if you should not do so because you have recorded a negative balance in said statement.
Therefore, depending on the declarations and the profits, or losses, presented by the company, the distribution will be made or not.
How are the profits to be delivered determined?
To deliver profits, the company establishes two amounts.
On the one hand, there is an amount that is distributed based on the wages received, for the work provided. While, on the other hand, the days worked are taken into account and, based on this, the delivery is calculated.
In this way, the first delivery would be practically similar for all workers, while the second varies depending on the days worked by the employee.
Likewise, the payment of debts with the employer, the payment of alimony, as well as the payment of taxes for the benefit obtained are deducted from the delivery.
Workers Ineligible for Profits
In addition to the temporary ones, there are another series of workers who, in the same way, are not eligible for distribution.
Among these, the following should be highlighted:
- Directors, managers and administrators.
- Partners and shareholders.
- Casual workers, with less than 60 days worked.
- Workers who provide outsourced services.
Companies that should not make profit sharing
As with workers, there are exceptions that prevent a company from making profit sharing.
Among these exceptions, the following should be highlighted:
- New, newly created companies.
- When a new line of business is created, they are exempt for two years.
- Public institutions with cultural, welfare or charitable purposes.
- Institutions that, being welfare, are private.
- Newly created mining companies.
- In Mexico, companies with an income of less than 300,000 pesos.