How to Process Union Payroll 

With only slightly over 6% of all private sector companies unionized to some degree, many payroll clerks and businesses may not have experience processing union payrolls. That union payrolls make up a small part of the payroll market is only part of the equation. Many aspects of these payrolls are processed differently and often separately from normal payrolls. Taken together, this means the relatively small market share and the vast difference in calculation tables result in few payroll processing companies either equipped to handle or willing to create software to manage union payroll systems.

You’ll need to set aside a portion of each union employee’s paycheck for union dues as well as making calculations of various benefits paid to the union by the company (either weekly or monthly). What follows is a compiled checklist of 5 things you need to understand to process union payroll.

What Is Union Payroll?

Union payrolls are unique in that union companies are required to submit to each local trade that represents their workers’ fringe benefits (such as: pension, annuity, medical, etc.). These are payments a union company must make to avoid costly non-payment consequences levied by workers and the union. The amount you pay will be determined by the benefit rate sheets or contract you either received or that are available from each local union. Quite often, you’ll have to manage a long list of union benefit calculations that go above and beyond what you’d need to manage for non-union workers.

That’s just the tip of the iceberg; every union local will have its own set of benefits and the benefit rates required can change after contract negotiations.

That complexity makes union payroll like working with a different language from a payroll software perspective and is why most payroll companies either refuse to do union payrolls or struggle to create managed software that can handle the task correctly.

1. Generate Union Reports

The system you use to process your union payroll must have the ability to track payroll items that are not included with your employee earnings, deductions or even state or federal taxes. In fact, the system you use will need to calculate and track union benefits that are not even on the employee’s paycheck. The union benefit data is important to create certified payroll reports like the federal Form WH-347 or The City of New York Office of the Comptroller Certified Payroll Report. Similar requirements will exist in many other cities and states, as well.

Confused? You’re not alone, because most payroll software operates with a deductions-focused structure in the calculations, the unique requirements of union payroll (payments calculations outside of deductions), you may be struggling to get your payroll software to account for your union workers’ benefits.

2. How Does Union Payroll Work?

Union payroll starts with entering the employee’s hours into your payroll and job costing software. You need the right software to get the job done accurately and consistently. Make sure at a minimum that your system has these fields pre-loaded or the ability to input the following types of data:

• Reg hours, overtime hours, and double-time hours
• Job name, job code, cost code, expense by job, holiday vacation, COVID-19, sick, retro earnings, bonus check, garnishment, manual check
• Employee name, hourly rate, alternate hourly rates per employee, day and date of hours worked
• Employees’ union division/classification, temporary and/or alternate employee union benefits, or prevailing wage benefit rates

If that seems like a fairly long list, it is. Consequently, most standard payroll systems don’t allow you to create, preload, or input this type of data.

3. Payroll Entry Grid — A Must-Have for Union Payroll

If your payroll system doesn’t offer a pay entry grid, you’re in trouble when it comes to union payroll and reporting. A payroll system needs to handle these scenarios before you determine if it’s a good fit:

• Has the ability to process multiple unions, sometimes for a single employee in a work week
• Allows you to process job codes, cost code and expenses by job, and offers the ability to track your Workers Compensation premium by class code
• Allows you to track multiple jobs for an employee in the same week and even on the same day
• Provides the ability to produce manual checks - “Layoff = Payoff”.

Again, these features are essential to payroll systems where union workers are on the payroll.

4. Accurate Union Benefit Calculations

Union benefits are just a simple percent or flat deduction from the employee’s paycheck, right? Wrong.

That’s, unfortunately, what many professionals with years of experience often misunderstand. Before you get started building the formulas that will calculate your employee’s union benefits, get the cheat sheet version of your Union Benefit Rate Sheet from each union local representing workers at your business.

Be prepared to answer or understand the following concepts and questions if you’re building the union benefit formulas specific to all the employee's various union benefits:

• What is the difference between “deductions and fringe benefits”?
• What is the difference between “Total Gross Wages” and “Standard Gross Wages” listed on a Union Benefit Rate Guide?
• What is the difference between “Hours Worked” and “Hours Paid”?
• Please give an example of a “Taxable Union Benefit” versus a “Non-Taxable Union Benefit”?
• When will Layoff Check taxes and benefits get calculated?
• Will all this info export directly into my Certified Payroll Reports, Job Cost Reports, and my accounting software?
• Can you pay holiday, vacation or sick hours to an employee without paying union benefits on those wages?

The better you understand these questions, the less likely you are to make mistakes in the process. Consulting your union local can go a long way to avoiding potentially costly issues.

5. Paychecks, Payroll Taxes & Quarterly and Annual filings, and W-2s

If you’ve gotten this far, you might have noticed that calculating and issuing the employees' checks and paying all required state, federal and local taxes are last on the list. Payroll is the easy part. There are various payroll options if you just need to calculate plain old payroll. Union Payroll requires experience and knowledge of unions.

There’s an unavoidable learning curve even if you are a professional payroll administrator with years of experience. That being the case, getting union payroll wrong because you have the wrong payroll software is like playing Russian roulette with a contractor’s life. Under-payments or late payments are not acceptable.

Union Payroll Is a Different Animal

Unions are as American as apple pie. Union Payroll administrators, bookkeepers, and service providers that understand how to calculate union benefits accurately are a RARE BREED because of how convoluted, customized, and varied a union payroll can be, even within the same state. Most payroll companies and software aren’t built to track and report the data that union contractors need as they only speak the language of “deductions.” Union payroll is not a deduction, leaving most payroll software providers stumped.

Hire a professional that is aware of the complexities of your union and payroll reporting needs. Don’t just take the professional and/or service provider’s word for it. Use this information to check that your service provider has the knowledge or tools you need to get the job done right.