Learn more about wage bonds, and apply today. Absolute Surety offers surety bonds nationwide through a convenient online application system.
What Are Wage Bonds?
Wage bonds, also known as union bonds, are a form of financial guarantee bond. The bond ensures that companies that hire union members make the proper payments to the union fund for dues, wages, and/or benefits. A union bond is commonly referred to as a wage bond when it covers only payments for wages. A benefits or fringe benefits bond covers only benefits contributions, not wages. The terms of the collective agreement negotiated between an employer and a union before the company can hire any union employees set the terms of the bond and the required amount.
Who Needs Them?
Any company that enters into a collective agreement with a union may be required to purchase a wage bond to guarantee that union members will be compensated in accordance with that agreement.
How Do They Work?
The three parties involved in the bond are the union (the obligee requiring the bond), the employer (the principal required to purchase the bond), and the surety (the company that underwrites and issues the bond). The employer’s failure to pay employees who belong to the union as set forth in the collective agreement results in claims being filed against the bond. The surety will determine whether each claim is valid before paying it. The surety will then pursue the employer for reimbursement of claims paid out to union members.
What Do They Cost?
These bonds are considered to be somewhat risky. Companies that need them are typically required to post collateral in the full amount of the bond. The amount of collateral required can be reduced if the bond applicant can produce a “good guy” letter. This is a letter from a surety company attesting to the fact that the applicant has been a customer of the surety for some period of time and is in good standing.
The requirements for obtaining a wage bond, including the amount of the bond, are spelled out in the collective agreement negotiated between the union and an employer, so they all are different. The annual premium for the bond is a percentage of the total bond amount. It is set by the surety based on the applicant’s credit standing and business financials. For an applicant with good credit, that rate will be in the range of 1% – 4%.
Use our convenient online system to apply for a wage bond today.