Wage and Welfare surety bonds are a type of financial guarantee bond that guarantee payment to any union employees if the Principal (business and/or business owner(s)) fails to pay any wages and/or fringe benefits as stated in the Union’s collective bargaining agreement. In the event of default, the surety would investigate the demand for payment and, if valid, issue payment to the Union and/or Union employee per the terms of the bond form. However, if the surety does issue a claim payout, they will look to the Principal to recover any losses and require full repayment for any claims paid.
The bond limits will vary from Union to Union. Some will have a standard bond amount that they require from all contractors, while others will base the required bond limit based on the number of Union workers employed by the Principal. The terms and conditions are usually stated in the Union’s collective bargaining agreement and in the bond form as provided by the Union. In addition to the payment guarantee aspect of this bond requirement, there can also be language included in the Union’s bond form that may not be agreeable to a surety company.
Generally, the rates for this type of bond will start at 2% for preferred applicants with strong personal credit and financial statements (if required) but are often rated between 3-5% of the required bond limit. Non-standard and collateralized rates are also available. For example, a $10,000.00 bond requirement could result in a $200.00 annual premium for preferred applicants but can range based on credit up to a $2,500.00 annual premium with possible collateral required. The bond form language can also affect the rate if the surety feels it presents a higher risk.
Due to the financial nature of this bond obligation, it is considered a hazardous bond type and therefore usually requires a bit more underwriting review than any other standard license or permit bond. To apply for this bond, we just need the following information:
• 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 $30,000.00 or if requested by the surety)
• Business Financial Statement (for limits over $30,000.00 or if requested by the surety)
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!