Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
Last month, Puerto Rico’s governor approved Act 41-2022, which includes a series of amendments to Puerto Rico’s Act 4-2017, better known as the Labor Transformation and Flexibility Act (LTFA), and other employment legislation. Act 41-2022 includes various provisions, including those providing special treatment for employers that are deemed microenterprises, small or medium businesses (jointly “PYMES” by its Spanish acronym) based on their gross income and number of employees1 during a determined period, as defined by Act 62-2014. Such special treatment includes: (1) a 90-day deferred effective date of Act 41-2022 (i.e., until September 18, 2022); (2) a special hours-worked requirement for employees hired after the effective date of the LFTA in order to be entitled to the Christmas bonus; and (3) an exemption to the double pay provision applicable when a student works on the day of rest or 7th consecutive day of work. In an effort to clarify the size and income determinations of these enterprises, the Puerto Rico Secretary of Labor and Human Resources issued Opinion No. 2022-02 (“the Opinion”), which provides the following methodology for employers to self-classify as a PYMES under Act 62-2014:
- The number of employees shall be determined by adding the number of employees for each payroll period during the last natural year divided by the same number of payroll periods during the 12 months of said natural year.2 If the enterprise has not operated for more than a year, the number of employees shall be determined by adding all employees for each payroll period, divided between the number of payroll periods completed to date. The opinion emphasizes that the average number of employees is the best indicator for determining the size of an enterprise during the appropriate time period.
- As to corroborating gross income, the determining factor is “the data used represents the best estimate of the enterprise’s financial condition during the last fiscal year.” There are several alternatives:
- Financial statements prepared and certified by a certified public accountant (CPA), particularly, the income statement.
- In the absence of financial statements, the information presented in tax returns or the statement of business volume required by Act 107-2020, as amended, “Municipal Code of Puerto Rico.” When the latter approach is used as a reference, the sum of all statements presented before all municipalities where the business operates at the state level shall be used.
If the business is new, the employer shall annualize the weekly average income.
The Opinion directs employers to review annually their number of employees and gross income to ensure they continue to meet the terms as defined by Act 62-2014, and advises that the PR Department of Labor and Human Resources (DLHR) has the authority to investigate employer compliance with employment laws, including compliance with the PYMES definition under Act 41-2022. It nevertheless recognizes that the DLRH does not have the resources to certify employers as PYMES or to publish a list of employers that qualify as such. It further recognizes that Act 62-2014 is legislation under the jurisdiction of the Department of Economic Development and Commerce and that the DLHR shall not usurp its power of interpretation and regulation.
1 Microenterprises are those that generate a gross income of less than $500,000 per year and have seven or fewer employees; small-sized business are those that generate a gross income of less than $3,000,000 per year and have 25 or fewer employees; medium-sized business are those that generate a gross income of less than $10,000,000 per year and have 50 or fewer employees.
2 For purposes of the Act’s effective date, employers should consider 2021.