Union payroll and fringe benefits for contractors

Union payroll is ordinary payroll with a second payroll attached to it. Alongside the wages going to the worker, a set of contributions goes to funds that are not yours and never were — pension, health and welfare, training, vacation, and whatever else the collective bargaining agreement names.

Those fund contributions are usually reported and paid monthly, to several destinations, on their own deadlines. Miss them and the problem is not a late fee: fund trustees can audit, assess interest and liquidated damages, and in some circumstances pursue individuals. It is the one part of contractor payroll least forgiving of a bookkeeper who is guessing.

The agreement is the specification

Everything about union payroll comes out of the collective bargaining agreement, and the details differ by local, by trade and by classification:

• The wage rate for each classification and apprentice level
• The fringe rate for each fund, usually per hour worked
• Whether fringes are owed on overtime hours, and whether at straight or premium rate
• Which hours count — travel, show-up pay, holidays
• The reporting format and the monthly due date for each fund

That last point is the one that surprises people: different funds often want different reports on different dates. A business working under two agreements in two locals can have several separate monthly remittances, each with its own form.

What the books must separate

The most common failure in union contractor books is treating fringe contributions as part of wage expense. They are neither wages nor your money — they are amounts owed to a third party, computed from hours worked.

Set up the books so that, per employee and per job:

• Hours by classification are recorded, because both the wage and the fringe depend on which classification the hours were worked in
• Wages are one account
• Each fund has its own liability account, so what you owe each one is visible before it is paid
• Fringe cost is charged to the job, because the real cost of an hour on that job is the wage plus every fringe on top of it

That last line is also what makes estimating honest. A union hour costs well above its wage rate, and a bid built on the wage underprices every job. See job costing for contractors and the true hourly cost calculator.

Reconcile every month

Three things should agree each month, and reconciling them is the whole discipline:

1. Hours on the certified payroll or fund reports
2. Hours in your payroll register, by classification
3. The liability accounts in your books, cleared when each fund is paid

A difference found in the same month is a correction. The same difference found in a fund audit two years later is interest, liquidated damages and a reconstruction exercise.

Where union and prevailing wage overlap — and differ

On public work you may be subject to prevailing wage rules as well as an agreement. They are not the same thing: prevailing wage is set by a government determination for the location and classification; the agreement is a contract with the union. Where both apply, you generally owe the greater obligation, and the certified payroll reports you file have their own format and their own penalties for inaccuracy.

How fringe credits work against a prevailing wage obligation is specific and easy to get wrong. See prevailing wage and certified payroll, and get the treatment confirmed rather than assumed.

Fund audits

Funds audit contributing employers as a matter of routine. An auditor will typically ask for payroll registers, time records by job and classification, the general ledger, cash disbursements, and often records for anyone paid as a subcontractor — to test whether someone who should have been a covered employee was paid outside the agreement.

That last point connects directly to classification: paying a worker as a 1099 subcontractor when the agreement covers the work is one of the most expensive findings available. See 1099 or W-2.

If you are signatory for the first time

Three things to get right before the first payroll runs:

1. A payroll system that handles fringes by classification — most general small-business payroll products do not, and a spreadsheet alongside it is how errors start
2. A liability account per fund in the chart of accounts, set up before the first contribution is owed
3. Time records that capture classification and job, because reconstructing which hours were worked in which classification is not possible after the fact

Related

• Prevailing wage and certified payroll
• The year-end payroll checklist
• Construction bookkeeping, step by step

General information, not legal or tax advice. Rates, fringe treatment, reporting formats and deadlines come from your own collective bargaining agreement and the funds themselves.