Running payroll for union employees follows the same federal tax and withholding rules as any other payroll, but the collective bargaining agreement adds a second rulebook on top: contract wage scales, mandatory dues handling, and employer contributions to jointly administered trust funds. Understanding how union payroll works means understanding that almost every calculation traces back to the CBA, and that missing a deadline or misreading a classification can trigger grievances, ERISA penalties, or a shutdown on the job site.
Wages Set by the Collective Bargaining Agreement
The CBA controls virtually every wage calculation. Instead of individual negotiations, it establishes scales by trade classification — apprentice, journeyman, foreman — with a specific hourly rate at each level. Seniority usually determines when a worker steps up the scale, so payroll needs to track tenure and apply scheduled increases automatically. Rates stay locked in for the life of the contract, which typically runs three to five years, and payroll cannot deviate from the schedule without risking a grievance.
Contractual overtime frequently goes beyond the federal floor. The Fair Labor Standards Act requires time-and-a-half only after 40 hours in a workweek.1Office of the Law Revision Counsel. 29 U.S. Code 207 – Maximum Hours A CBA might require double-time for Sunday work, for hours past ten in a single day, or for work on designated holidays, whether or not the employee has hit 40 hours that week. These premiums are negotiated, but they carry the same legal force as any other contract term.
Shift differentials add another wrinkle. Many CBAs pay a flat dollar or percentage premium for evening, night, or weekend shifts, and that premium must be folded into the regular rate for FLSA overtime purposes. If a worker earns $35 per hour plus a $2 night differential and works overtime, the overtime rate is based on $37, not $35. Missing that step is one of the more common payroll errors in union shops.
Construction and trade CBAs often add travel and subsistence pay. Contracts typically define a free zone around a home shop or hiring hall, say 50 miles, within which no extra travel compensation is owed. Beyond that radius the employer owes mileage, travel time at the applicable wage rate, or a daily subsistence allowance for meals and lodging on overnight jobs. These amounts are spelled out in the agreement and tracked separately on payroll records.
Union Dues and Voluntary Deductions
Before withholding any union dues, the employer must have a signed written authorization from the employee. The Labor Management Relations Act specifies that the written assignment cannot be irrevocable for more than one year or beyond the expiration of the current CBA, whichever comes first.2Office of the Law Revision Counsel. 29 U.S. Code 186 – Restrictions on Financial Transactions Payroll departments keep these authorizations on file and track their renewal dates.
Dues structures vary by local. Some charge a flat monthly amount, others take a percentage of gross wages, commonly around 1% to 2%. New members often owe a one-time initiation fee that may be spread across several pay periods. Payroll staff need to know the specific structure for each local they deal with, because the CBA spells out the exact amount or formula.
Some employees also authorize voluntary deductions for political action committees or other union-sponsored funds. These contributions are voluntary under federal election law and must be kept completely separate from dues in the employer’s accounting.3Federal Election Commission. Payroll Deduction – FEC Commingling PAC contributions with general operating accounts or dues creates both labor law and campaign finance problems.
Withheld dues are held in trust until the scheduled remittance date. The money belongs to the union the moment it leaves the employee’s gross pay, and late or missing transfers create real liability.
When Dues Can and Cannot Be Required
Whether the employer can require dues as a condition of employment depends on the state and the sector. Federal labor law allows unions and employers to negotiate union security clauses requiring workers to pay dues within 30 days of hire.4Office of the Law Revision Counsel. 29 U.S. Code 158 – Unfair Labor Practices Two major carve-outs affect payroll directly.
Roughly half of states have right-to-work laws that prohibit mandatory dues as a condition of employment. In those states, workers in a unionized bargaining unit can benefit from CBA wage rates without paying anything to the union. Payroll may see two categories of workers in the same classification doing the same job, and the deduction authorization process matters more because there is no contractual backstop forcing participation.
Public sector unions lost the ability to charge agency fees to non-members entirely after the Supreme Court’s 2018 decision in Janus v. AFSCME. The Court held that extracting fees from nonconsenting public employees violates the First Amendment, and that no payment may be deducted unless the employee affirmatively consents.5Supreme Court of the United States. Janus v. State, County, and Municipal Employees Public employers cannot default anyone into dues deductions; each worker must opt in with affirmative consent.
Private sector workers required to pay under a union security clause still have the right, established in Communication Workers v. Beck, to object to paying the portion of dues that funds non-representational activities like political lobbying. Objecting workers pay a reduced fee covering only collective bargaining costs. Payroll needs to flag who has filed a Beck objection so the correct lower amount is deducted.
Employer Contributions to Trust Funds
On top of hourly wages, union employers make substantial contributions to trust funds the employee never sees on a paycheck. Federal law permits these payments when they go to jointly administered trust funds for health care, pensions, disability and life insurance, apprenticeship training, and pooled vacation or severance benefits.2Office of the Law Revision Counsel. 29 U.S. Code 186 – Restrictions on Financial Transactions The CBA specifies the dollar amount per hour for each fund.
A typical construction CBA might require $8.00 per hour into the health and welfare fund, $4.50 into the pension fund, and another $1.00 to $2.00 into an apprenticeship training fund. These amounts are calculated on every compensable hour, and the CBA defines whether that means hours actually worked, hours paid (including holidays and PTO), or some other measure. Getting the hour base wrong is one of the fastest ways to end up delinquent.
Each fund is managed by a joint board of trustees with equal representation from labor and management, a federal requirement under the same statute that authorizes the payments. These contributions are employer costs above the hourly wage, not deductions from worker pay, and they are tracked separately from the company’s own insurance or retirement plans. For project bidding, the total labor burden — wages plus all fringe contributions — is what matters, and underestimating the fringe piece can turn a winning bid into a losing contract.
The trust funds are ERISA-covered employee benefit plans. For a multiemployer plan, the plan administrator files the annual Form 5500 with the Department of Labor, not the individual contributing employers.6U.S. Department of Labor, Employee Benefits Security Administration. 2024 Instructions for Form 5500 The employer’s job is to report hours and contributions accurately to the fund on its schedule so the administrator can file correctly.
What Happens When Contributions Are Late
Falling behind on trust fund contributions is where mistakes get expensive fast. ERISA requires every employer obligated under a CBA or plan to make contributions on the terms and schedule the agreement specifies.7Office of the Law Revision Counsel. 29 U.S. Code 1145 – Delinquent Contributions When a plan sues to collect, the court must award interest on the unpaid contributions, liquidated damages up to 20% of the delinquency, and the plan’s reasonable attorney’s fees and court costs.8Office of the Law Revision Counsel. 29 U.S. Code 1132 – Civil Enforcement
That structure is mandatory. Once the plan gets a judgment, the court has no discretion to skip the extras. Many trust fund agreements also include their own penalty schedules that kick in automatically before any lawsuit, such as late fees or suspension of the employer’s participation. And because the local monitors these payments closely, falling behind can also lead to a withdrawal of labor from the job, which creates a separate set of project costs and delays.
Certified Payroll on Federal Projects
Union payroll on federally funded construction projects carries an extra reporting layer under two overlapping laws. The Davis-Bacon Act requires that every worker on a covered federal contract exceeding $2,000 be paid at least the prevailing wage rate for their trade classification in that geographic area.9Office of the Law Revision Counsel. 40 U.S. Code 3142 – Rate of Wages for Laborers and Mechanics The Copeland Anti-Kickback Act then requires the contractor to furnish a weekly certified payroll statement proving compliance.10Acquisition.GOV. 22.403-2 Copeland Act
Most contractors use Form WH-347 to satisfy this requirement, though the form itself is optional; what is mandatory is the weekly submission of payroll data and a signed statement of compliance. Each report lists every worker by name along with an individual identifying number such as the last four digits of their Social Security number. Full Social Security numbers must not be included.11U.S. Department of Labor. Instructions For Completing Davis-Bacon and Related Acts Weekly Certified Payroll Form, WH-347 This trips up contractors using older versions of the form, which asked for full SSNs.
The report breaks down each worker’s hours into straight time and overtime by classification, shows the hourly cash wage paid, and itemizes the employer’s fringe benefit contributions. The total package of cash wages plus bona fide fringes must meet or exceed the prevailing wage determination for that trade and locality. Classification accuracy matters: logging a carpenter’s hours under a laborer classification means the prevailing rate comparison is wrong, and even an innocent error can look like wage theft to an auditor.
Contribution Reporting, Remittance, and Audits
Beyond weekly certified payroll on Davis-Bacon jobs, employers submit contribution reports and payments to each trust fund on the schedule the CBA or trust agreement specifies, usually monthly. Most funds now operate electronic portals for report submission and payment, though some smaller locals still accept paper. After filing, an employer can typically request a letter of good standing confirming that all obligations are current, which many general contractors require from subcontractors before allowing them on a project.
The reports require detailed breakdowns: each covered employee’s name, hours worked by classification, and the corresponding contribution amounts for every fund. This granular tracking is what makes union payroll systems more complex than standard payroll. You are not just cutting checks; you are generating auditable records for multiple external parties on different reporting cycles.
Trust funds regularly audit contributing employers to verify that reported hours and contributions match actual payroll records. Audits are initiated by the plan’s board of trustees, not the union local, and are typically conducted by internal audit staff or an outside CPA firm. Many plans audit each contributing employer every three to six years, with newer employers and those flagged for suspicious contribution patterns audited sooner. During the audit, the auditor compares payroll records, tax filings, and bank statements against the contribution reports, looking for unreported hours, misclassified workers, and underpayments. Organized documentation with a clear trail from time records to payroll runs to contribution reports to electronic fund transfers is the best protection.
Grievances and Back Pay
When a union member believes they were underpaid — wrong classification, missing overtime premium, shorted hours — the CBA’s grievance procedure is the resolution mechanism. Most agreements require an informal attempt first, where the shop steward and a supervisor try to fix the problem without paperwork. Many payroll disputes get settled at this stage because the error is obvious once someone pulls the time records.
If informal resolution fails, the grievance moves to a formal multi-step process. It typically starts with a written grievance filed within a contractual deadline, often 30 to 60 days from the date the worker discovered the underpayment, then progresses through senior levels of management review. If the parties cannot agree, the final step is binding arbitration before a neutral third party whose decision both sides must accept.
Back pay awards cover the wages the worker should have received minus what they actually got. Federal agencies computing back pay on government contracts apply an interest rate that adjusts quarterly, currently 7% as of early 2026.12U.S. Office of Personnel Management. Interest Rates Used for Computation of Back Pay Catching errors early, before they compound across pay periods and accrue interest, is always cheaper than defending a grievance months later.