By Jeffrey Schwan, CPA.
We’ve all heard about high profile strikes. They have a major impact on all of us. However, here’s something we likely aren’t all thinking about: What are the financial impacts for the workers?
Most people don’t know what to expect financially if their union goes on strike, including the potential tax implications involved. Let’s break down the various effects a strike can have on individual finances.
What is a Union?
Unions are meant to represent a group of workers collectively. Essentially, they organize workers and help negotiate with the management of a company (or companies) for items like pay, benefits, hours, and more. Remember, strikes only impact unions. So, if you aren’t a member of a union, you don’t have to worry about a strike.
A union strike happens when the union and management are unable to negotiate to meet one another’s needs. At this point workers, walk off the job and picket with the hope of negotiating more favourable conditions. This can be a hard step to take – not only does your employer lose money, but you won’t be paid for the missed hours either.
What Happens to Your Income?
It stops… Sort of. You will receive any pay owed to you by your employer for previously worked hours, but following that you will no longer be paid by your employer for the duration of the strike. Basically, as long as you are away from work your employer will not pay you.
Fortunately, most unions have something called “strike funds.” You know those union dues you pay? This is one of the places they go. You very likely will be paid out of this union fund for the duration of the strike. However, the amount will likely be much lower than your regular wages.
You know that if you are on strike, you will likely receive only a portion of your regular pay from your union. But, the strike pay you receive from your union is a non-taxable income. That’s right, it’s tax-free!
Of course, there are a few rules involved. First, you must perform picketing duties as a requirement of membership. Second, you must follow the guidelines of the strike as set out by your union. If you’re not picketing, you won’t be paid by the union.
The reason strike pay is tax-free because of a Supreme Court decision in 1990. The Supreme Court ruled that strike pay is not income because it is meant to sustain a labourer during a strike, not replace a full income.
So, how do you claim strike pay? Well, actually, you don’t… You won’t get a tax slip from your strike pay or have to submit any information about the payments for your tax return.
What About My Pension?
Unfortunately, a strike is considered time absent from work without pay. Because of this, time off due to strike is not considered pensionable service and pension contributions will not be made during this time.
Deductions for Canada and Quebec pensions are based on ‘actual earnings’ (money you earn from your employer, not strike pay) and so no deductions will be made during a strike. Deductions will continue as normal when the strike ends and earnings resume.
Other Benefits Affected
The general rule is that benefit plans cease for employees on strike. This is dependent on your union and your situation. Here are some of the exceptions to the rule:
- If you’re worried about disability and health insurance, don’t be. According to the Government of Canada, “coverage will continue for the period in respect of which deductions have been made . . . other circumstances pertaining to disability insurance will be subject to special instructions.”
- If you’ve been on EI, you may still be eligible while on strike. You’ll have to show that your leave was anticipated and that arrangements had been made. For example, being on short-term sick leave before a strike can prove that your leave was anticipated. Check with Service Canada to see if you meet their entitlement for sickness benefits.
Finally, Always be Prepared
Strikes can be short or long-term, so it’s best to always be prepared. Some industries are more susceptible to regular strikes. If you’re in one of these industries (Canada Post is a great example), be sure you know all the potential financial impacts upfront.
Finally, make sure you have some money saved up – just in case. Talk to your union about what they expect of you and what benefits you’ll still be entitled to during a strike.
Jeff Schwan founded Schwan & Associates in 2016 to bring unique “cloud-based” accounting services to small and medium-sized Edmonton businesses.
Jeff Schwan has 10+ years of experience in diverse management roles, Jeff has acquired a strong set of leadership and mentoring skills. He is, and always has been, an educator at heart. He knows the value of spreading knowledge, investing in people, and continually learning.
To learn more, you can visit his website at www.schwancpa.ca