What is a wage and welfare bond?
A wage and welfare bond is required by unions when negotiating collective agreements with other companies. The bond guarantees an employer will honor the payments of union dues, contributions to funds and promised benefit packages to employees of the union. If a union member company fails to uphold its obligations under the bond’s terms, the bond amount is used to pay claims for salaries, wages, fringe benefits and/or compensation for services rendered by employees represented by the union. Each particular wage and welfare bond is unique to the union by whom it is required.
Wage and welfare bonds may be referred to by different names:
How do wage and welfare bonds work?
Wage and welfare bonds function the same way as any other surety bond; the bond acts as a legally binding contract joining three entities together and guaranteeing terms established by the contract are met. The three parties involved in wage and welfare bonds are as follows:
- Principal: the business employing union members
- Obligee: the union requiring the bond to protect the employees’ interests
- Surety: the underwriter issuing the bond, which provides a financial guarantee of the principal’s ability to uphold its duties to union members
Why would I need a wage and welfare bond?
Companies need wage and welfare surety bonds prior to hiring members of a union. The bond promises union members will be compensated based on the collective bargaining agreement between the union and employer. A wage and welfare bond is a long-term financial guarantee, and regardless of an applicant’s credit, our surety experts will work hard to help secure the bonds unions require employers to obtain.
What are the financial characteristics of wage and welfare bonds?
Because wage and welfare bonds are a type of financial guarantee, they are seen as inherently risky by underwriters. Although underwriters will thoroughly review every application before even approving the bond, applicants who are highly qualified may still be quoted at a 1-3% rate. To find out exactly how much you’ll pay for your wage and welfare surety bond, get your free, no-obligation quote today!