How to Calculate Payroll for Union Employees in 2024

In 2021, only 10.3% of American workers belonged to unions. But unions are gaining popularity in more industries than ever. Young people in particular are leading the charge toward more unions in more industries, and they’re not going anywhere anytime soon.

Payroll departments need to understand how to integrate the details of having union employees within their ranks. But managing relations with unions (and serving their members within the organization) isn’t as easy as just letting representatives through the door. Unions charge fees from their members to maintain membership so they can be accounted for during votes and negotiations. Employees may be classified as different types of union workers even if they hold the same position — thus requiring different payment structures within your company database. All this affects not just your payroll process, but also how you handle labor allocation and division of labor among union and non-union employees.

Paying your employees is one of the most important duties for a human resources department. It’s important to ensure that people are getting their hard-earned money. Plus, the organization at large can face real consequences if payroll is not distributed in a timely fashion. However, you also need to adhere to laws and regulations regarding fees, taxes, and union membership among employees.

Issuing payroll for union employees requires careful planning and diligence. There are so many factors to keep track of, and the stakes are consistently high. Read on to learn about how you can best work within unions within your organization, as well as set the stage for working well with unions in the future.

Know How Your Organization Works With Unions

There is more than one type of union, and all of them have different needs and requirements.

Your organization should (ideally) have regulations in place for what unions the company can work with and their relationship to them as a company. Here are the four types of union relationships companies can have:

  • Agency Shop: A company that has a union but hires both union and non-union employees. Employees don’t have to be union members for continued employment. However, non-union employees must pay fees to cover collective bargaining costs.
  • Closed Shop: A company that only employs union members. This kind of company requires them to secure and maintain their union membership as a condition of employment.
  • Open Shop: A company that may have a union, but hires both union and non-union employees. Union membership is not a requirement for continued employment.
  • Union Shop: A company that doesn’t require employees to join a union in order to be hired, but they must join within 30 days of employment.

Your company may also be based in a “right to work” state, wherein companies are banned from asking employees to join a union or pay any dues/fees to remain employed. Make sure you know exactly your company’s official stance on these points so you can begin the union information integration with no worries.

Optimize Your Payroll System for Success

Before adding union requirements into the mix, it’s important to make sure that your existing system for payroll is running correctly. This includes making sure that your payroll system has proper input fields for union membership information, job codes, documenting expenses per job (if applicable) and wage benefit raises.

When you know your system can handle additional information related to unions, make sure you have these helpful items before going forward:

  • Essential information for all employees: If you’ve been running a functional payroll system, you should have plenty of information and communication documents for each of your employees. Before you begin syncing things for union payroll, make sure you have each of these documents in place.
  • Basic tax information: Ensure you’re following the Employer’s Tax Guide and everything is in place for state and federal tax withholding (including the appropriate tax rates).
  • Tax payment schedules: Some unions can have different payroll schedules and annual fee schedules than corporations. You’ll want to have those deadlines recorded when you set up your formal pay period schedule and a system for tracking billable hours. Note whether each deduction needs to be made from gross pay, taxable wages, or net pay.
  • Union due payment schedules: It’s also important to record at what point in the payment cycle union dues are deducted. It may be different between unions, depending on the industry. Very frequently, they are calculated based on a percentage of hours worked.

These may feel like extra steps before the real work begins. But minding these details and complying with deadlines are crucial for maintaining good labor relations from the beginning.

Account For Federal and State Regulations

This may seem like an obvious step, but it’s essential to do this before adding more complexity to your process with union information. Before you start building profiles for employees to automate your payroll system, make sure you have everyone’s Employee Identification Number (EIN), and you’ve registered with the Electronic Federal Tax Payment System (EFTPS).

Ensure that every employee has the proper classification within the company and possibly within their union as well. Timing windows of what must be paid or observed (and when) must be recorded, including the all-important lookback period. You’ll want to verify payment and fee schedules as well — these can easily vary between employee classifications.

Make sure that both the payroll and the HR departments of your organization have what they need to record accurate schedules (they frequently need different information for their processes in dealing with unions). There are several details like this that can be difficult to keep track of in the midst of all your preparation. This explains why many payroll departments don’t perform union payroll at all — even though they miss out on potential talent by doing so.

Check Union Restrictions and Requirements For Your Region

The process of adhering to a union’s regulations starts with ensuring accurate knowledge. Once you’ve verified that you will be working with members of a certain union, it’s often best to reach out to the union and see if they have any resources available to employers.

Official/Registration Information

Registrations should be discussed early with the union representative. Your company should receive registration information that you may need for interfacing with the union or its members. This is important. For example, one group that represents airline pilots is filed under the number 000-179 at the Department of Labor. Another union, one that represents farm workers, is filed under the number 000-323. One small mistake can lead to missing deadlines and general confusion.

Inter-Union Communication Regulations

Check for regulations in place from each union in your area. This can include collective bargaining agreements and/or other fees and regulations that may hold up invoicing for the work itself. For example, Massachusetts has an intricate system of seniority for when there’s more than one union involved in collective bargaining.

Work Regulations

Ensure you have documented information about union regulations on hand. The union may have a Union Benefit Rate Sheet written specifically for distribution to employers. Unions are in fact required by law to supply important information to employers in a timely manner upon request. The Association of Wall-Ceiling and Carpentry Industries (WC&C) is a great example in that they make their rate sheets available to the public, even for jobs that take place outside New York’s boroughs.

Fee Schedules

Remember to account for allocating fees to the union when performing labor cost allocation for projects. All in all, you want to ensure that neither you nor the union suffer consequences that could have been avoided with a single question. The answers aren’t always obvious — some unions (like the Plumbers and Pipefitters Local 145) go with a flat rate every month, while others go for a percentage.

If you don’t make payments on time, your organization may end up paying too much, and you may not be able to correct what will likely be an expensive mistake. Payroll errors when dealing with unions often come with serious fines.

Make Sure Your Payroll Software is Set Up To Work With Unions in the Future

Unions need information on benefits their members will enjoy at their workplace, including pension and healthcare benefits. They want to make sure that their members are receiving everything they are contractually obligated to receive.

Withholding this information, or not tracking it at all, may cause a breakdown of trust with the union. You may also miss crucial details about where and how benefits are distributed. Unfair treatment (or even just a dysfunctional benefits system) is something you want to detect immediately so your employees don’t suffer.

What Do Unions Need to Know From Companies?

The employee might not want or need the nitty-gritty information about their salary. But their union will want to know:

  • If hours paid align with hours worked
  • If union dues are paid on benefits like vacation time
  • How much of this is accounted for within your software

Unions may have regulations about how time is budgeted for employees. Regardless of industry, employees need to track their time spent working and that time needs to be categorized correctly.

You may also need this information for resolving disputes in the future, as well as preventing unnecessary or unethical overtime. You also want to avoid confusion around billable vs. non-billable hours and generate reports for these metrics for use in negotiations.

Ensure Paychecks Are Calculated Correctly

Payroll workers need to become familiar with the pay scale used by their organization before negotiating with or discussing issues with a union. This will be important when discussing wages, bonus schedules, and other factors that go into future negotiations. It also may help if and when your company hires contractors that hold union membership, so that the integration of them into the system runs as smoothly as possible.

Payroll entry grids (or similar features) should be a part of your HCM. You’ll also need to be able to handle exceptions, extensions, spontaneous firings, and employees that are members of multiple unions.

These details and multiple checks are necessary for unions to protect their members and to ensure that everyone is being held accountable. It’s a lot to keep track of, and it can seem overwhelming. But good relations with unions are worth maintaining.

Make Sure Benefits Information is Readily Available

Verify that the information is easy to access for employees and payroll professionals alike. This will help not only in negotiations, but in making sure your company is adhering to collective bargaining agreements. Benefit calculation for union employees may be more difficult — but you don’t want to miss anything in the process.

Make Union Payroll Easier with Criterion

Part of being a functional organization is ensuring that every employee is aware of and can exercise their personal rights, including that of joining a union. Compliance with laws and regulations regarding unions isn’t just a legal obligation — it’s a signal to your entire workforce that the organization supports their rights. It builds a foundation of trust between employer and employee.

Processing payroll according to all of the various union rules and regulations is a challenge for many HR departments. Criterion offers an adaptable solution. Our HCM software handles both union and certified payroll calculations to ensure accuracy for employee payment and fringe or union benefits.

Union payroll rules and taxes vary by state, industry, and even certain cities — Criterion handles all this complexity for you, so you always remain fully compliant with zero payment delays. Book a demo of Criterion today and learn how you can make payroll seamless for everyone at your organization.

Steve Tompkins
Steve Tompkins is an HCM Solutions Consultant at Criterion HCM and is located in San Diego, California.
Download This Whitepaper for an Enhanced Reading Experience
Oops! Something went wrong while submitting the form.