Utilidades, meaning "profits" or "profit sharing," refers to the mandatory distribution of company profits to employees required by law in several Latin American countries. Unlike discretionary bonuses, utilidades are a constitutional or statutory right of workers and must be calculated and paid according to specific formulas.
Rates by Country
Ecuador mandates 15% of pre-tax profits, split as 10% distributed equally among all employees and 5% distributed based on dependents. Peru requires 8% to 10% depending on the industry (mining, fishing, telecoms, manufacturing, etc.), with 50% distributed equally and 50% proportionally by salary. Mexico requires 10% of pre-tax profits through the PTU program, subject to individual caps introduced in 2021.
Exemptions and Limits
New companies are typically exempt from profit sharing during their first year of operations. In Mexico, companies in their startup phase or producing a new product may also receive temporary exemptions. Senior executives and general managers are usually excluded from the profit-sharing pool. Companies that report no profits have no obligation to pay utilidades.
EOR Relevance
An EOR navigates profit-sharing obligations for each country, applying the correct rates and distribution formulas. In many cases, the EOR's own profits serve as the basis for calculating utilidades for EOR-employed workers, which can be an important consideration when choosing an EOR provider.