Payroll Considerations of Strikes

Aug 26, 2023

If you happened to grow up on Long Island in the 90s/00s like me, you might remember a few glorious days one school year when we unexpectedly got time off of school because the public school teachers union went on strike. Little did we know then that we had to make up the missed school days over the summer. We are at a unique moment in economic history in the U.S. given that some of the biggest unions across industries are on or threatening to strike. The writers strike has been going on since May. Actors in the SAG-AFTRA union joined them not too long after in July. Now the UAW, representing close to 400,000 active auto workers, and 500,000 retired workers, went on strike. Even Bethany Frankel, of the Real Housewives of New York, drafted a proposal to unionize reality tv personalities.

Putting aside the detailed demands from each union and the political nuances of striking, there is an actual operational implementation of strikes from a payroll perspective. Just because the workers stop showing up to work, doesn’t mean that everything on the finance side just stops. 

Generally when a union calls a strike, it means that the worker in that union will no longer be receiving a paycheck from their employer. However, the employer generally continues to have tax and workers compensation obligations in the local,  state, and federal jurisdictions in which the strike is occuring. So even though they are not paying their workers, they are carrying some of the cost of them. In many cases, the employer is also obligated to continue making payments for health insurance plans and offer the administration of those plans. However, this is not always the case, and depending on the length of the strike these benefits may time out. At times unions will reimburse the employers directly for different health insurance related costs.

Unions tend to try to lessen the financial blow of its members during a strike by utilizing a strike fund. These are funds that the union has saved over the course of years collected from member fees in the event of a future strike. In the case of the UAW strike, they are providing members with a $100 per day “assistance payment” for each business day their members are not working. These payments are contingent on the member meeting certain criteria - for example showing up to picket lines when they are called.

There are no withholdings applied to these payments usually, and they are taxable. This means that in addition to receiving a W2 at the end of the year, striking union members can also expect to receive a 1099 related to this income if it exceeds the minimum $600 threshold for generating 1099s. These payments may also not come at the same frequency of their paycheck, so resulting cash flow disruption can be a serious concern. 

Strikes cause a massive shift in cash flows that can be dynamic depending on the length of a strike. It is important to have a plan in place if employing unionized workers to deal with the operational finance of a strike.

If you have questions about these or other payroll considerations, feel free to reach out to us at contact@hellofranklin.co.

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Incubated by Serotonin, a product studio and marketing firm for transformative technologies.

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© Franklin Systems Inc. 2024