Does Your Company Have a Wage and Welfare Bond?

Does Your Company Have a Wage and Welfare Bond?

As of 2018, more than 14 million American workers belonged to unions, representing 10.5% of the total workforce. If your company employs workers who belong to a union, it’s important for you to have an active union wage and welfare bond. To help you understand why this bond exists and what it means for your company, read the complete rundown below:

Why Do Unions Exist?

Before exploring why employers need a wage and welfare bond, it helps to understand why unions exist in the first place. When workers band together within a union they gain collective bargaining power against their employer. Typically, it’s in the company’s interests to keep wages and benefits low, whereas it’s in the workers’ interest to do the opposite. By bargaining collectively rather than individually, and threatening to strike if demands aren’t met, union workers have leverage against employers, which helps them secure better working conditions. Unions are largely responsible for basic employee protections that everyone enjoys – things like 2-day weekends and 40-hour work weeks. The influence of unions has declined in recent years, but they remain a powerful advocate for worker’s rights.

What are Wage and Welfare Bonds?

Unions negotiate employment contracts on behalf of employees, including the exact amount that employees will be compensated. If an employer fails to live up to that expectation and underpays an employee, that individual can file a claim against the bond to recover the lost compensation. Bonds guarantee that all valid claims will be paid up to the bond total, thereby ensuring that employers are held accountable when they wrongfully withhold compensation.

With most surety bonds, the obligee (the party that requires the bond) is some sort of government agency. In the case of wage bonds, the obligee is the trade union the employer is working with. The obligee sets the terms of the bond, including the amount, the conditions, and the duration. Employers may not be legally required to get the bond, but in its absence unions can refuse to honor employment contracts, leaving the employer without a workforce. Rather than risk a work stoppage, most employers agree to the bond requirement, but often they negotiate the terms first.

How Much Do These Bonds Cost?

Premiums are a fraction of the bond total, typically around 3-5%, which are calculated based on the applicant’s credit risk. Applicants may also have to put up a collateral with equal value to the bond total because these arrangements are considered high-risk for the surety company. The bond is active once the premium is paid, but unlike insurance, bonds do not provide financial protection and instead do much the opposite. If employees file a claim against the bond because of underpayment, the bond company compensates them initially, but then they collect however much they paid from the employer. The bond company acts as an intermediary, but the employer has the ultimate financial responsibility, which potentially raises the cost significantly. Depending on the terms of the bond, it probably needs to be renewed after a set period, which involves paying another premium. The best way to manage the cost of welfare bonds is to avoid any behavior that could trigger a claim.

How Do Bonds Assist Employers?

These bonds may seem like one-sided arrangements, but they actually benefit employers as much as employees. Finding and keeping good workers is hard in any industry, especially when unemployment numbers are low. People want to work for companies they know will treat them fairly and compensate them in full, which is exactly what wage bonds guarantee. When companies are negotiating with unions, bonds are a good-faith gesture signaling the company’s willingness to treat workers fairly. As a result, negotiations proceed smoothly, agreements are reached faster, and the union may even be willing to make concessions along the way. Employers bear the financial responsibility, but they gain a stronger workforce in return.

How Do You Obtain the Right Kind of Bond?

Unlike most other kinds of surety bonds, the terms of union wage and welfare bonds are negotiated between the parties involved, meaning every one of these bonds is different. You will need to find a surety company that is eager and able to offer a custom bond. Not all of them can, and even when they do, some don’t make the process easy. Therefore, you need to carefully select a surety company to work with.

Viking Bond Service offers everything you need. Union bonds often take longer to prepare due to the extra underwriting involved, but we are able to expedite the process, get you a quote quickly, and help you move forward with your union negotiations. Rely on our team to make the process seamless. Before you apply, take some time to learn all about surety bonds and why they’re both an obligation and an asset for many of today’s companies.