We have all heard about high profile strikes, the ones which impact us, the consumers. But what happens to the employees directly impacted by the strike? What is the financial impact on them?
Common perception is that when unions go on strike, that the new deal they reach will more than make up any money lost during that work stoppage. Well, that is not always the case. When unions strike, and money is removed from the employee, there are financial and tax implications which can overlap taxation years.
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. Strikes typically only impact union members, so non-members are not technically on strike, however, some non-union employees who will eventually be allowed to join the union might also part take so as to avoid any situations in the future.
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 (protest, carry signs, walk around the building where employees, management or customers might enter and exit) with the hope of negotiating more favourable conditions. This can be a hard step to take because not only does the employer lose money, but the employee is not paid for the missed hours either.
What Happens to Income?
It stops… Sort of. Employees will receive any pay owed to them by their employer for previously worked hours, but once that has been paid out, the employee is no longer entitled to be paid by the employer for the duration of the strike.
As long as the employee is away from the job, the employer will not pay them for their work.
Fortunately, most unions have something called “strike funds” which are paid to employees who walk the picket line. That fund is created through a pooling of the union dues employees pay. Unions can pay employees out of this fund for the duration of the strike – but at a much lower rate, or until the funds run out – and this pay is called Strike Pay.
Taxation of Strike Pay
The Strike Pay that you receive from your union is considered by the CRA to be 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, or nearly as much as the active strikers.
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 the Pension?
Unfortunately, a strike is considered time absent from work without pay, and 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.
Reporting Income
When that new agreement is reached, be sure to confirm with your union representatives and your HR representatives to be sure that it is clear for which taxation year the income is to be reported in. If the deal overlaps years, and involves significant amounts of retro-pay, it could result in a windfall in the current year which could bump you up into a higher tax bracket. If you’re using TurboTax, don’t worry, because when the software notices the amount of the income, it will move around expenses to reduce the tax implications. Smart software performs smart adjustments and allows you minimize tax owing and maximize your refund.
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.
By Jeffrey Schwan, CPA.
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