Wage & Welfare Bonds

A wage and welfare bond is a financial guarantee that an employer will pay hired union members all salaries, wages, and fringe benefits agreed upon in the union’s collective bargaining agreement. Due to the high-risk nature of wage and welfare bonds, requirements are stricter than other types of surety bonds. Premiums generally cost 2% to 15% of the minimum required amount, which will vary per union.

In this wage and welfare bond guide, we will cover:

• Definition & Example

• How It Works

• Cost & Requirements

• Different Types

• Where to Find & How to Apply

• FAQs

Wage and Welfare Bond Definition and Example

Before an employer hires union members, they often need to furnish a wage and welfare bond. This specific surety bond ensures that employers will pay union members all salaries, wages, and fringe benefits, as outlined in the union’s collective bargaining agreement. If the employer violates the agreement, then an employee can file a claim to collect the amount owed.

There are three individual parties involved in a wage and surety bond contract:

• Principal: The employer that must buy the bond before they hire a union member (you). 

• Obligee: The union that requires the company to buy a wage and welfare bond before they hire one of their members.

• Surety: The surety company that underwrites the bond and guarantees to the obligee that the principal (you) will fulfill the bond requirements.

What is an example of a wage and welfare bond Claim?

A Wage and Welfare bond guarantees the payment to union members all salaries, benefits, and other agreed-upon forms of compensation. If the employer does not fulfill their obligations the Union may place a claim on the bond. Example: The Union files a claim against the bond because a hired union member was underpaid for multiple paychecks to the tune of $1,000. The claim is validated and the surety then reimburses the union member for $1,000.

How Does a Wage and Welfare Bond Work?

Wage and welfare bonds are intended to protect union employees, not employers. Specifically, union members can seek financial reimbursement if their employer fails to pay (or underpays) their salary, wages, fringe benefits, and other forms of compensation.

Since each union has their bond requirements (amount and term) and may require that you their specific wage and welfare bond form, you should double-check with the specific union before purchasing your bond. Generally, you will need to know the following when shopping around:

• Bond amount: The highest amount that can be collected from an approved claim. The minimum amount will vary per union.

• Premium: The cost of purchasing a bond — typically 2% to 15%

• Term: How long the bond lasts before it will need to be renewed by paying another premium — usually one year.

What happens when a claim is filed?

If a hired union member files a claim, demanding payment for unpaid wages, for example, the surety will conduct an investigation. If the claim is proved valid, then the claimant will be paid the amount owed. The surety, however, does not cover losses the way an insurance company would. You will still be responsible for repaying the surety the full amount paid out on a claim.

Wage and Welfare Bond Cost and Requirements

There are no universal requirements since each union will set its own demands. Some unions may have a flat dollar amount or may base it on the number of union-protected workers employed by the business. Generally, these requirements will be settled between the business and union before union members are even hired, so the employer will know what to expect.

Sureties may require that you post collateral due to the high-risk nature of wage and welfare bonds. Collateral on a bond functions similarly to collateral on a loan — if you’re unable to repay the surety after a claim payout, the surety can seize the collateral to recover their losses.

Rates on a wage and welfare bond typically start at 2% and can rise to 15% and more. Those with good credit generally qualify for lower premiums. Rates can also change based on whether you pledge collateral or not. For example, a $10,000.00 bond requirement could result in a $200.00 annual premium for preferred applicants, but can range up to a $1,500.00 or more.

Types of Wage and Welfare Bonds

Wage and welfare bonds are sometimes called:

• Union bonds

• Union wage and welfare bond

• Wage and fringe benefit bond

• Fringe benefit bonds

• Wage fund bonds

• Welfare fund bonds

Typically, these bonds go by different names depending on what is being protected. Wage and welfare bonds protect union members in multiple ways — salaries, wages, welfare benefits, and more. A fringe benefit bond, on the other hand, would only protect union members against lost fringe benefits.

How Do I Get a Wage and Welfare Bond?

Wage and welfare bonds are often available through insurance carriers or companies that specialize solely in surety bonds. These days, the application process is often quick and completely online.

That said, getting a wage and welfare bond has a few more steps than other types of surety bonds due to their high-risk nature. Worldwide Insurance, Inc. sells wage and welfare bonds across all 50 states and we require the following:

• Completed commercial bond application

• Copy of union’s required bond form

• Review of business owner(s)’s personal credit

• Personal financial statement (for limits over $25,000.00 or if requested by the surety)

• Business financial statement (for limits over $30,000.00 or if requested by the surety)

As mentioned, you may also be required to pledge collateral but non-collateralized rates are available (but are usually higher). If you find yourself having a hard time getting one of these bonds placed, give us a call at 1-888-518-8011 or apply online to start the process today!

Wage and Welfare Bond FAQs

What is a wage and welfare bond?

A wage and welfare bond is a financial guarantee that an employer will pay union members all salaries, wages, fringe benefits, and other forms of compensation. If a union member believes they were underpaid by the employer, they can file a claim against the wage and welfare bond to collect the amount owed.

How much does a wage and welfare bond cost?

A wage and welfare bond typically costs 2% to 15% and up of the minimum bond requirement set by the union. A $30,000 bond, for example, can cost $600 to $4,500 or more depending on how good your credit and business financials are. 

How long does a wage and welfare bond last?

Terms on wage and welfare bonds typically last one year and you will need to pay another premium to renew your term.

Can I get a bond with bad credit?

Yes, bad credit applicants can still get bonded but may face higher premiums. Worldwide Insurance, Inc. works with thousands of business owners — even those with low credit — to help them meet their bonding requirements.

What type of surety bond do I need?

Visit our list of bonds by state to get a closer idea of your bonding requirements. To learn more about surety bonds in general, check out our free surety bond guide.