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April 20, 2020

Are Your Union Dues considered a “Payroll Expense” for Payroll Protection Program Loans under the CARES Act?

Since COVID-19 has taken over our daily lives, we have received numerous questions from our clients regarding specific fact patterns and how they are handled under the new laws, regulations, and guidance. Due to the urgency of the situation, many clients have not had a chance to fully understand the impact of these new laws, and the CARES Act is no exception. Many clients who are signed to union collective bargaining agreements (CBAs) need to know how union dues are impacted by the CARES Act. The short answer is that they are not.

Initially, it is important to understand what is covered under the CARES Act and what is not. In its simplest terms, the CARES Act addresses employer payroll expenses. This includes wages, employer-provided fringe benefits, payroll taxes, and the like. Note that union dues are an employee deduction and not an employer contribution.

By way of further background, a union dues deduction is strictly a product of a CBA. Under the law, an employer is permitted to deduct from an employee’s wages the amount of dues that the employee has authorized. The employer has actually paid the employee’s gross hourly wage rate in the first place, from which the employee’s taxes and any other employee-authorized deductions are made. Such deductions include co-pays for health insurance premiums, optional enhanced fringe benefits costs, employee deferral under the employer’s 401(k) plan, a multi-employer union vacation fund, AND union dues. In short, the employer has already given the employee the hourly wage (from which the dues are deducted) that is already part of the employer’s CARES Act payroll calculation.

If an employer was able to “add on” the cost of the employee’s dues to what it was seeking, it would be double-dipping. We have seen that some unions are suspending or deferring the collection of dues during this time. Many unions do not charge dues during periods of layoff. Of course, this begs the next question—what if the employer continues to make wage payments to bargaining unit employees (to be eligible for a forgivable loan), should dues still be deducted? YES, as the employee continues to be paid. The union would not know if the employee is actually working or just sitting at home and effectively getting paid for not working. There is no harm in asking the union, in writing, what their position is on the deduction/remittance of dues. Remember, it is the employee’s money, not the employer’s.

This is a long way of saying that union dues have nothing to do with the CARES Act and how the amount the employer is seeking is calculated.

Source: Cohen Seglias Pallas Greenhall & Furman’s Labor & Employment Group.