Complicated Rules and State-by-State Variability Provide Plenty of Potential Pitfalls
Wage Garnishments – Chances are good that some of your employees are having their wages garnished, and the complicated garnishment process provides a lot of potential pitfalls for employers. Payroll pros, HR, accountants and business owners need to be on their toes, as they are responsible both to their employees for paying wages and to the government or other garnishing party for complying with laws and court orders.
Title III of the U.S. Consumer Credit Protection Act allows employers to garnish up to a quarter of an employee’s earnings, and that percentage can rise in cases where child support is court ordered—in some child support cases, garnishment can go as high as 65 percent.
Garnishment Targets: Midwestern Male Gen-Xers in Manufacturing
While statistics are scant, a comprehensive and widely-cited 2017 study from payroll processing and management services company ADP found that 7 percent of American employees’ wages were garnished. Nearly half of those were for child support, while owed taxes, student loan debt and consumer debt also ranked high in reasons for garnishment.
The report noted other trends in America relating to garnishments:
- Men made up 71 percent of all employees with garnishments, though when child support was backed out, garnishments were roughly equal between men and women
- Gen-Xers had the highest rate of garnishment at 10.2 percent
- In general, companies with more than 1,000 employees were most likely to have workers with garnished paychecks
- The goods-producing sector had the highest garnishment rates
- The Midwest has the highest number of employees with garnished wages
Employers Stuck in the Middle
Garnishments can put employers in the hot seat, even though human resources is only acting as a conduit for the money. The ADP study said that “businesses appear to be caught in the middle, striving to fulfill their obligations to employees under wage payment laws and to creditors under garnishment laws.”
“The ADP study also suggests that both employers and employees may be better served if the companies involved become ‘more proactive’ by assisting garnished workers while potentially decreasing future garnishments,” noted CBS news in a story on a previous version of the study.
Being more proactive involves ensuring that your policies and procedures are clear about your responsibilities as the employer. Take into consideration:
- How garnishments are defined, by both state and federal law
- Specific requirements for child support, including deduction limits, deadlines, filing procedures, administrative fees, and penalties/fines for violations
- Procedures and standards for terminating employees when child support is involved
- How you will communicate with employees and issuing parties
- How to calculate withholding and prioritize the order of distribution when an employee has more than one type of garnishment
- How you will process child support garnishments in the payroll department
- Paperless options involving electronic withholding orders and paying by EFT
Penalties for running afoul of garnishment rules vary by state, and variations in state laws can impact each step of the garnishment process.
Whatever you do, don’t ignore a garnishment order. “In the majority of states, an offending garnishee (i.e., an employer) is liable for up to the full amount of the debtor’s (whether this person turns out to be an employee or not) outstanding debt,” reported the Society for Human Resource Management.
And there are hazards for employers that go beyond simply failing to garnish wages—incorrect filings and even missing answering deadlines can result in fines.
“Using best practices can help streamline an employer’s responsibilities and ease the potential anxiety an employee may feel with this sometimes-necessary workforce issue,” warned Workforce.
(This post first appeared in a ProfEd blog)
By Jeff S on 22nd November 2017