What is a Collective Bargaining Agreement (CBA) and Why It Matters for Payroll

According to the International Labor Association, collective bargaining is a basic right for every employee. Union and non-union employees alike have a right to contest and negotiate working conditions in order to prevent unfair employment practices. However, negotiations like this can be tricky for any company.

In addition to balancing a variety of different interests from employees and company stakeholders, you will most likely have to contend with unions. Certain unions have specific requirements regarding pay, benefits, time off, and more. The results of these negotiations can be complicated and may require you to administer payroll and benefits in ways you’ve never done before.

However, if you understand how a collective bargaining agreement (CBA) works and how it can affect your payroll process, you’ll be better prepared to deal with the implications and tensions that arise during union negotiations. Here’s a breakdown of CBAs, how they work, and how you can manage payroll with these implications in mind.

What Is Collective Bargaining?

Collective bargaining is a system of negotiation around terms of employment. Most often, these negotiations occur between companies and labor unions (e.g. an electrical company and an electrician’s union). In these cases, a union represents the employees and discusses terms of employment with the employer. The goal is to arrive at a CBA, in which both parties are satisfied with factors such as:

  • Salary/commission
  • Bonuses/benefits
  • Conditions of employment
  • Working hours
  • Workplace safety and related regulations

It’s also important to note that negotiations of this kind tend to happen when something is already wrong. Often, the discussion will occur in conjunction with strikes or some other major disruption. However, collective bargaining may also coincide with contract renewals or addressing the terms of new employment. You may also initiate bargaining as an employer if you aren’t satisfied with your employees for some reason. In any case, these are often high-stakes negotiations and may be quite stressful for everyone involved.

One of the most famous examples of a collective bargaining agreement occurred between players and the National Football League (NFL) in 1968. Initially concerned about their pay, benefits, and pensions, players organized with the National Football League Players Association and eventually voted to strike. The NFL issued a lockout, and tensions rose quickly. In the end, the NFL had to concede to the union because the American Football League had already agreed to deliver upon union requests. This would be the first of five player strikes to take place against the NFL in its history, the longest lasting 57 days. The 1982 strike (and consequent renegotiation) resulted in expanded player benefits, a revised playoff structure, and the assurance that players would receive expanded medical benefits (among other things).

Types of Collective Bargaining

In general, there are five different types of collective bargaining, differentiated by the original reasons for negotiating:

  • Productivity Bargaining: This type of negotiation comes as a result of employers desiring more productivity or better results from their employees. Additional employee benefits or rewards may be discussed in the interest of achieving this.
  • Composite Bargaining: Salaries and payment in general usually aren’t discussed in composite bargaining. Instead, this is when unions discuss working conditions (e.g. environmental conditions, working hours, etc.), corporate policy, or other salary-adjacent topics.
  • Integrative Bargaining: This type of collective bargaining is less focused on specific issues, and more focused on finding a solution that benefits both parties. Unions and employers in these scenarios seek a “win-win” agreement that balances what each side values most.
  • Distributive bargaining: This type of negotiation is designed to discuss giving one of the parties something at the expense of the other, such as supplementing employee benefits by cutting executive raises. It’s often associated with unions receiving concessions from the employers. But that result often requires high union membership.
  • Concessionary Bargaining: When times are tough at a company (such as during a recession), unions may call for a concessionary bargaining session to advocate for employee retention above all else. Unions often offer up benefit cuts or similar sacrifices to ensure that as few employees are fired as possible.

There’s also no guideline for the length of time union negotiations may take, and they can affect employee life to different degrees. The average time for negotiating to the point of achieving a CBA is 409 days, although this differs widely by industry. Be prepared for the fact that collective bargaining negotiations can easily take months, even years. Once a tentative agreement has been reached, union members will still have to vote to ratify it. If the vote to ratify ends in a “no,” it’s back to the drawing board for negotiations.

How Are CBAs Enforced?

The legal precedent for collective bargaining is one of the most important protected workers’ rights in American law — and for good reason. Before this was a legally guaranteed right, American workers didn’t have the same power to negotiate better terms with their employers. This led to things like unfair pay, dangerous working environments, and other outcomes we now work to eliminate.

While different states may enforce this right to different extents (especially in states with “right to work” laws), American employers are legally obligated to negotiate with unions in good faith.

How Can a CBA Affect Payroll?

As an HR professional, it is vital to learn the rules of your local unions and the relevant laws in your areas of operation so you can remain in compliance. That said, the results of a CBA can affect payroll in a number of ways. Here are some changes you might encounter:

Wage Changes

One of the most common areas of employee life affected by contract negotiations is employee wages. While some agreements require that employees be paid a minimum amount, you may also have to consider prevailing wages for certain jobs.

Prevailing wages are prearranged wage rates for different union members performing different activities during a given pay period. For instance, you might have employees who can do electrical work and plumbing work. Depending on what jobs they work during a given pay period, different CBAs might require you to pay them specific wage rates or an additional amount on top of what they normally make.

Prevailing wages may even vary by location. For instance, imagine you pay a union bricklayer $35.00 per hour for a particular job in Phoenix, AZ. However, you also have another job in Las Vegas that could benefit from the bricklayer’s talents, so you send them out to Vegas as well. However, the bricklayer’s union in Vegas may have a rule that requires bricklayers to be paid $40.00 per hour. Although you are paying the same employee, there may be a collective bargaining agreement in place that mandates a different wage depending on the location. You’ll need to account for these various rules when running payroll for multi-state and/or multi-union employees.

Union Dues

With a CBA, you will also have to account for union dues. As an employer, it is your responsibility to collect these dues as deductions from each union employee’s paycheck. The CBA will specify how much each employee owes in union dues and how often. It may be a certain percentage of their wages, a flat fee, or some other amount. The amount may even vary each pay period depending on the number of hours an employee works. It may even vary by each union — it all depends on the results of each CBA.

To do this, you’ll need a reliable way to make sure you’ve deducted the right amount from each employee’s paycheck each pay period. If you have a mix of union and non-union employees (and you’re working with multiple unions), it’s easy to see how these rules can make your payroll process a lot more complex.

New Overtime Rules

A CBA can also change how you calculate overtime or how much overtime a union employee is allowed to work. Traditionally, overtime pay activates only after an employee has worked 40 hours in a given workweek. However, a CBA may change that limit to 35 hours or even 30 hours. Likewise, a CBA may also increase the overtime pay rate from the traditional 1.5x multiplier to 1.75x, 2x, or higher.

This can significantly change your payroll process in terms of how much you pay certain employees, and when certain employees require a different wage rate. Depending on how many hours an employee works in a given pay period, you may have to pay someone widely different amounts each payroll cycle.

Mandated Holiday and Sick Leave

Contract changes may affect how much holiday and sick leave is guaranteed to employees each year. This could include specific requirements for how much time off is required, as well as rules around when and how employees can use this time.

The negotiations surrounding paid time off for the railroad workers’ union are a prime example of this. In September of 2022, negotiations that started in 2019 finally reached a collective bargaining agreement. In this case, the rail workers' union argued that rail workers have been subject to little time off or sick leave since the inception of railways, which has put them at risk for safety hazards on the job. President Biden signed a congressional resolution that granted one annual “paid personal day” and three annual periods off for medical visits. While some still argue that the agreement did not guarantee enough sick leave, the agreement certainly made historic progress.

For railroad companies, this additional paid time off and sick leave are now required by law. However, these additional benefits may increase the company’s overall labor costs and payroll expenses. More paid time off naturally raises the cost per employee, and with less hours worked, companies often need to hire more people to achieve adequate labor allocation. HR departments and financial analysts need to account for these factors when handling new payroll and time off policies.

Different Benefits

In some cases, a collective bargaining agreement will specify certain benefits (and even certain plans) for union employees. So, you might offer a standard set of healthcare plan options to non-union employees, but a specific mandated healthcare plan (from a specific provider) to your union employees alone.

Of course, this healthcare plan will likely have different premiums which will need to be accounted for as deductions during each payroll cycle. This means you’ll need to keep track of which employees have which plans and deduct the right amount from each paycheck to make sure those plans are maintained.

Manual Processes Become Inefficient

If you’re calculating payroll manually (using spreadsheets or similar programs), union rules and collective bargaining agreements make the process even more complicated and prone to error.

As you’ve seen, CBAs can contain complex calculations for overtime pay, prevailing wages, differentials, deductions, union dues, and more. All of this can be difficult and time-consuming to calculate manually. What’s more, different union locals may have varying requirements that you’ll need to comply with across different job sites, cities, etc. Add in multiple unions across multiple states, and payroll quickly becomes a nightmare to process each pay period.

Pulling all of this information together manually from disparate sources and databases is wildly inefficient. Trying to keep track of every single detail and verify all of these calculations each time is laborious and prone to error — even if you have a small employee roster. The process can take days to complete in some cases. This makes running payroll with traditional methods or legacy systems incredibly inefficient and expensive.

How To Prepare Payroll For The Impact of CBA Rules

Even if you understand the terms of an CBA and how it can affect your payroll process, you’ll still need to figure out how to manage payroll in light of new changes. Of course, that’s easier said than done.

While there’s no way to prepare for every single scenario, there are a few measures you can take to help your team become more capable of handling these changes:

Make Your Payroll Information Transparent

When you need to pay employees according to so many various rules, it’s important that both managers and employees understand how the system works. You don’t have to give a full course on your new payroll rules, and you don’t want to tell everyone at the company how other employees are paid. That said, it’s wise to make sure that each employee’s payment structure is available for them to learn about, if they choose.

If nothing else, you’ll want to create documentation for each employee and make sure they can easily access this documentation to learn about the different wage rates, overtime rates, and other rules associated with their pay.

Create Specific Training for The Payroll Department

Consider holding training sessions for the payroll staff to help them run payroll according to the changes outlined in the CBA. Write out trial scenarios and state what in the system would need to be updated (and in what order). These procedures should also include how to change policies for proper document control, when to notify groups of employees, and what outcome-dependent actions need to be taken (such as writing press releases).

This is often going to be a time-sensitive issue. In many industries, payroll occurs every two weeks, so the admin employees responsible for that process need to be prepared to make changes immediately. This means companies need to quickly design and administer training programs that bring employees up to speed fast, without disrupting regular operations any more than necessary.

Implement Self-Service Time Tracking

If you have to manually enter time for each employee, this puts a huge workload on your HR/payroll department. With an already complex set of union and state-specific rules to account for in payroll, you want all the time savings you can get.

However, imagine if employees are able to track their own time in a system that automatically accounts for that data when processing payroll. With this kind of solution, time spent manually accounting for things like overtime, local union wage rules, fringe benefits, and deductions decreases dramatically, saving precious labor hours.

Automate Your Process With Union-Specialized Payroll Software

It’s imperative to manage union information and payroll with an HCM solution that can handle that level of complexity. Even if you use some form of robust payroll software, it won’t have the same functionality and reliability as an HCM with many of these union-specific calculations built into the payroll process.

It’s important to know how your payroll process works, but knowing every single detail and managing those details during every payroll cycle is needlessly complicated. It also requires a lot of work, and if done manually, can be incredibly prone to error. Instead, you need something that can account for all of the different variations in your payroll process created by a CBA and make those calculations automatically.

No matter your industry, union-specialized payroll software makes it’s easy to execute changes across groups of employees without needing to go into every profile individually. You can set up the rules of each CBA ahead of time, setting rates and custom logic for specific rules, so that each employee is automatically paid correctly each payroll cycle. You can then make changes at a more basic level to apply automatically to all future pay periods.

Criterion helps automate the complexity of running multi-state, multi-union payroll with various CBA-related rules. It starts with the ability to create custom employee profiles that feature different aspects of their position (including union memberships). This information transfers smoothly into your payroll process to account for employees working in different states with varying union agreements and labor laws.

Criterion streamlines that payroll process to ensure you remain compliant with all regulations — with zero payment delays. This reduces errors and saves time, allowing you to focus on the more critical aspects of your business. The platform is also easily customizable, so you can implement new changes to policies, reconfigure processes, and generate reports with the click of a button.

Final Thoughts

Keeping track of union information, especially as it relates to payroll, can be incredibly complex. Different states and unions have different rules regarding pay, labor hours, and additional compensation that can affect your payroll process in ways you might not realize at first. These rules may even change by time of year.

No matter what your approach to payroll, you don’t want to be struggling to update your system when union negotiations are underway. You don’t want to worry about whether or not your team or your legacy software can handle this new complexity when a strike is staring you in the face. To remain agile in the midst of significant changes like these, you’ll need to be equipped with software that can handle the most complex payroll challenges.

That’s where our strengths lie. Criterion HCM is designed to handle the details of union membership and collective bargaining agreements for you. Using Criterion’s HR and Payroll modules, you can automate your payroll process for different employees according to union regulations, even across multiple states and countries. Our software has many calculations related to prevailing wage and related rules built in, so you don’t have to worry about doing the math right. Plus, you can easily make adjustments and customizations to suit any need and generate custom reports for labor costs, benefits, and much more.

Make sure your payroll process remains in full compliance with any agreements — with zero delays. Book a demo with Criterion today to see how it works.

Gary Anderson
Gary has been a driving force at Criterion since 2016, bringing over twenty years of experience in HCM, HR & Payroll solutions to our executive team. His team continuously works to anticipate & understand the HCM needs of SMBs, helping us to produce solutions to solve key business issues our customers face.
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