UAW's $5,000 bonus — plus more cash for many — could cover holiday splurge or big bills

Pumped up paychecks and a $5,000 pre-tax bonus would hit checking accounts of UAW members at the Detroit Three shortly after union members approve the tentative agreements in the next few weeks.

The four-figure, lump sum ratification bonus will be paid out within two weeks of the union membership ratifying the agreement, according to the United Auto Workers' highlights published online for Ford Motor Co. hourly employees and General Motors employees.

Stellantis notes that ratification bonus payments will be made in the second pay period following written notification of contract ratification. Represented hourly employees at Stellantis are paid weekly; represented salaried employees are paid every other week. Both groups will receive the ratification bonus.

Voting is ongoing at the UAW locals with members at the Detroit Three. Those on strike agreed to return to work after the tentative contracts were reached in late October.

For many, the money could feel like a windfall.

Some will receive even more cash upfront. The UAW tentative agreements at GM, Ford and Stellantis each include another healthy chunk of cash -- a "supplemental ratification bonus fund" to offer extra money to mitigate the financial impact on employees who walked out on strike or were laid off at various points in time as a result of the the UAW's historic Stand Up Strike that began in phases Sept. 15.

The UAW strike plan in 2023 involved a most unusual strategy for targeting only three key plants at all three Detroit automakers initially on Sept. 15 and then unexpectedly escalating strike activity at different operations as the weeks of the labor battle progressed.

All of the Detroit Three agreed to this special bonus that applies on a pro-rata basis for each day of lost work. It applies if the workers did not receive a supplement unemployment benefit from the company. Some UAW members could be looking at a few extra thousand dollars.

In addition, UAW members will receive a record 11% wage increase upon ratification of the tentative agreement. And temporary workers at the low end of the pay scale will see even more substantial wage gains. Overall, the proposed contract calls for a 25% wage increase across the life of the more than 4½-year agreement, which would expire in 2028.

Extra money could arrive just in time for UAW members

Given the lengthy ratification process, the extra upfront cash could arrive just in time to splurge on holiday shopping. Or cover some of those bills. That's if the agreements are approved as the UAW leadership has recommended.

"It's going to drive consumer spending in Michigan in the near term and support the local economy here," said Bill Adams, chief economist for Comerica Bank.

A ratification bonus, much like profit-sharing checks that also are part of the deal next year, can easily be viewed as "free money" after all. And people can be more willing to spend, rather than save, such bonuses.

But it is money that you worked — or went on strike — to get. It wasn't free at all.

As part of the 2023 tentative agreement, temporary workers will benefit from the profit sharing plans at the Detroit Three, starting with the 2024 payout. It's the first time that temporary workers will be eligible for profit sharing.

Any time you're looking at a large lump sum, you might spend a few extra dollars on some frivolous and fun purchases, but a bulk of that money can be targeted toward getting rid of some financial headaches.

“If you receive a raise or bonus payment, it’s easy to increase your overall standard of living, but that’s not always the best approach,” said Kathryn Ellywicz at GreenPath Financial Wellness, a nonprofit credit counseling agency.

Realistically, she said, most consumers are often better off being more aggressive about paying down their debt on high-cost credit cards and student loans when they receive a sizable lump sum.

The average interest rate on credit cards is 20.72%, according to Bankrate.com's data. That's up from an average of 16.34% in late February 2022 before the Federal Reserve kicked off a robust round of rate hikes.

As paychecks grow, auto workers might try to allocate even a little extra money to cover big expenses ahead, maybe saving more toward a down payment to replace an old car one day, putting more aside for helping their children pay for college or even saving more toward retirement.

"While not necessarily fun, putting those additional funds toward debts and savings can significantly improve your financial picture," Ellywicz said.

Who gets what is complicated

The financial game plan will be different for those who went on strike and those who didn't.

The highly unusual UAW strike strategy in 2023 meant that a large number of union members actually stayed on the job and kept working.

Others hit the picket lines. More than 48,000 UAW members went on strike at some point since the contract expired at 11:59 p.m. Sept. 14 — and they were forced to live on substantially less money while on strike. Some were on strike as long as 41 days; others were on strike much less than that.

The UAW represents more than 145,000 auto workers at the Detroit Three.

As of Oct. 30, GM had about 17,400 UAW workers, including 3,200 hourly UAW workers at Spring Hill, Tennessee, who went out on strike.

The ripple effect associated with the strike at GM facilities was estimated to have spread to 2,500 other workers who were laid off at GM as of Oct. 25, according to GM's tally of the strike's impact.

Ford had 16,600 workers on strike at three plants and 3,167 workers on layoff at 10 Ford sites, according to a Ford news release dated Oct. 24. Targeted UAW strikes against Ford began on Sept. 15 in Michigan, Sept. 29 in Illinois and Oct. 11 in Kentucky.

Stellantis had about 14,300 employees on strike and 2,045 laid off temporarily due to the strike, according to the company, which builds several well-known brands such as Jeep, Ram and Dodge.

For those who lost work when the UAW took their factory or facility on strike, an extra bonus can apply to laid off workers and those who went on strike.

GM agreed to make $58 million overall available as part of what's being called the "Supplemental Ratification Bonus Fund," according to the UAW strike settlement online.

Ford agreed to make $53 million available for this unusual fund. Stellantis agreed to make $48 million available for the supplemental ratification bonus for those covered.

To reach the pro rata figure, the total amount at each company will be divided by the total number of work days lost by all affected employees. "Payments from the Supplemental Ratification Bonus Fund will be made in the form of a supplement to the base ratification bonus paid to all eligible employees following the ratification," according to UAW settlement language online.

UAW workers who lost work or went on strike, of course, faced a financial crunch when it came to paying their rent or mortgage and covering other big bills. Seeing $500 in strike pay fell far short of a typical paycheck.

Catching up on the bills and expenses that built up while on strike will be essential — including paying down any high cost credit card debt that was taken on during the strike.

Some may need to pay back strike loans of $4,000 or so that were designed to get them through the rough patches. If a loan doesn't have a pre-payment penalty, some might want to pay it off early to avoid paying extra interest.

If they tapped into emergency savings to cover the gaps after receiving $500 a week in strike pay, they'll want to rebuild their savings, too.

And don't forget preparing for a bigger tax bill.

If you were one of the auto workers on strike, take into account that strike pay will be counted as taxable income on on your future tax bill. Strike pay is taxable both on federal income tax returns, as well as state income tax returns in Michigan

Taxes weren't withheld from the $500 a week strike checks, creating what could be larger than expected tax bill for some. At $500 a week, for example, you’re looking at $3,000 in taxable income after six weeks on strike.

More: UAW's record raises, perks could have domino effect on other workers

More: UAW strike gains hopeful signs, just in time for economists

Lower paid workers see the biggest boost

The biggest financial impact of these contracts is going to be felt by lowest paid workers, not necessarily those who had been at the automakers for several years.

The UAW noted that some Stellantis employees hired in 2023 at $15.78 an hour will earn more than $40 per hour in base wages by the end of the agreement.

Some Stellantis hourly UAW workers currently making $18.04 an hour will see their pay go up to $24.68 an hour at ratification in 2023. That's nearly at 37% gain.

Immediately upon ratification, for example, some Ford hourly workers who have three years seniority will see their pay jump by as much as $11.18 an hour — or by more than $23,000 over a year, according to a chart in the Ford highlighter published online by the UAW. Their pay will go up to $35.58 an hour, up from $24.40 an hour currently.

Ken Rouse, a UAW member who has worked for 10 years at Stellantis, said he's making $31.77 a hour now and that would go up to more than $35 an hour upon the contract's ratification. That's a raise of around 11%.

But Rouse, 44, who is married and has two children still at home, ages 11 and 17, said the financial gains in the tentative agreement for many UAW members with several years on the job at the Detroit Three only help cover some of the pressures from high prices that families are already facing.

He is glad that the agreement will bring back cost-of-living adjustments after the high inflation in the past few years.

Even so, Rouse said he has reservations about the tentative agreement, particularly relating to the revisions in the language in the contract. He has concerns about the future of Trenton Engine, as well as how time off would be handled under the Family and Medical Leave Act.

Rouse said in early November that he planned to vote no but he thought some newer workers would vote in favor of the contract since they could see higher wage gains fairly quickly.

And he's not overly impressed with the $5,000 pre-tax ratification bonus.

Rouse remembers the $9,000 ratification bonus given as part of the 2019 UAW contract with the Detroit Three — and this contract's $5,000 bonus falls far short for him. In 2019, though, the bonus was only for $3,500 for temporary workers.

"This $5,000 sign on bonus is low, and they can do better with that," said Rouse, a UAW member who had worked at Trenton Engine Complex and now drives a forklift delivering material to the line at the Stellantis Mack Assembly Plant in Detroit. His plant wasn't on strike as part of the nontraditional Stand Up Strike strategy that targeted select operations at the Detroit Three.

By the time taxes are taken out of the bonus, he said, it's likely to be around $3,400 or so.

"To me, it's not really extra," he said.

Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X (Twitter) @tompor.

This article originally appeared on Detroit Free Press: UAW's $5,000 bonus could cover holiday splurge or big bills