As your business expands, it is likely that the number of wage garnishments you are called upon to process and must comply with also expands. While it's not always a fun topic to discuss, it's critical that every CFO and finance leader understand wage garnishment laws and regulations, and how they interact with your organization's legal responsibilities, both at the federal level and in each state in which your employees reside.
If your organization employs over 5,000 employees, it's likely that almost 10 percent of them will have some form of wage garnishment, according to recent ADP data. There are many reasons why an employee may have their wages garnished, from child support to credit card debt, but they all require adherence to court and administrative orders. Failure to remain in compliance can result in a legal and financial drain for both your own organization and the employee. This means that you'll need to understand not only the federal laws, regulations and rules, but also state laws, regulations and rules.
Many states have exemptions and other laws that can differ from or add to federal wage garnishment laws. Organizations will want to review these for each state in which your organization has a presence or does buiness. In particular, state laws can prescribe that a lower amount of wages be garnished and can establish the priority of one wage garnishment over another, something that is not directly addressed by the Consumer Credit Protection Act (CCPA).
While the CCPA is intended to provide protection to individuals from termination because of wage garnishment for any single debt, as well as establish the maximum percentage of their disposable income that can be garnished, some states go further. For example, South Carolina, North Carolina, Pennsylvania and Texas have passed laws that ban the garnishment of wages in these states for "commercial and consumer" debt.
Vermont: The Green Mountain State Helps Debtors Keep Their Green
While the CCPA restricts creditors from garnishing more than 25 percent of an employee's income, or any amount that exceeds 30 times the federal minimum wage (whichever is less), Vermont is more protective of its debtors. In the Green Mountain State, creditors can only garnish 15 percent of the debtor's weekly disposable income, or 40 times the federal minimum wage (whichever is less) — at least in some situations. If you have employees in Vermont, you should know that the state limit only applies to consumer credit transactions, such as credit cards. Also, keeping employers on their toes, Vermont's laws refer to this process as "trustee process against earnings" rather than wage garnishment.
Tennessee: If You Pay Them, We Can Garnish
It's official: if you hire a contractor in Tennessee who is a debtor, you may be sent a writ of garnishment, or garnishment order, for their payments. As of September 1, 2016, the language in the state legislation added "contracted by an employer" to the definition of an employee, and "retains, or contracts with...." to the definition of employer.
California: Get Your Calculators Out, This is Gonna Get Messy
Another state to call out to employers who are looking to expand but who want to stay in compliance with local laws is California. In July of 2016, California Senate Bill 501 went into effect. This bill states that debtors can only have their wages garnished if they are earning more than the local minimum wage, which is set to rise $5 over the next six years.
Additionally, the wage garnishment rate will be tapered. If the debtor earns less than twice the supplemental poverty rate for a family of three, they will pay less in wage garnishment — the poorest will pay the lowest amount. While this makes sense, it means that your accounting department will have their hands full, especially if you have a large group of minimum wage employees.
As your business expands, you'll need to invest in research, strategy and legal counsel help you to stay in compliance with local laws, wherever your employees and contractors are located. This is a necessary cost of success. Mishandling wage garnishment can lead to your organization to becoming liable for your employee's debt. Help reduce your compliance risk by working with a third party provider skilled in managing all aspects of your wage garnishment processing.
Stay up-to-date on the latest human capital management insights for finance leaders: subscribe to our monthly e-newsletter.
SIGN UP FOR THE BOOST NEWSLETTER