Think you know wage garnishments? You probably know the basics: When a debt is owed, an employer receives an order requiring them to withhold a portion of an employee's wages.
But are they really that simple? Not really—not simple to understand or to administer. Let's dispel a few myths about wage garnishments.
Aren't all wage garnishments essentially the same?
No, they're not—not by a longshot. Wage garnishments are withheld from paychecks for a variety of reasons, including bankruptcy or for the payment of creditors, child support, taxes or student loans.
Each type of garnishment is different, but so is the process for handling them, which can vary from agency to agency, court to court, and state to state. If you're an employer, it's challenging to stay abreast of the laws, rules and regulations that apply, to say the least. And when you have employees working in multiple locations, it only gets harder.
But aren't wage garnishments rare?
Not at all. Between 2011 and 2013, the ADP Research Institute(R) analyzed a large pool of anonymous payroll data—almost 13 million employees age 16 and older. What they found paints a pretty clear picture of the wage garnishments landscape.
Among other things, the study found:
- It's not uncommon. About 7.2% of surveyed employees had some sort of a wage garnishment.
- It can happen to you. Wage garnishments are most typical amongst employees in the 35-54 age group, and for those earning between $25,000 and $60,000 per year.
- It's not just for men. Wage garnishments apply equally to men and women. While wage garnishment types can vary by gender, the total numbers are spread fairly evenly between the sexes.
- It differs by industry. Manufacturing employees tend to have the most wage garnishments, while service industry employees have significantly less.
- It varies by state. Ohio has the largest volume of bankruptcy and child support garnishments, while California has the largest volume of tax-related garnishments.
Do the wage garnishments themselves change?
They can and do change, and sometimes in ways you might not expect.
Take the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. While the measure wasn't directed at wage garnishments, it placed additional reporting responsibilities on people who file for bankruptcy. As a result, many employers saw an increase in wage garnishments for bankruptcy cases and repayment plans, coupled with longer repayment periods.
Any legislation touching on wage garnishment issues, such as child support or collection methods, may have consequences for employers. That's why it's important to stay abreast of changes and how they might impact a business.
On the administrative side, isn't it easy to keep wage garnishments in compliance once an employer learns the rules?
Not necessarily. Each type of wage withholding is subject to different regulations, plus it's collected and processed by different state agencies or garnishors. Staying compliant isn't easy, but it's pretty important: If processed incorrectly, employers can be liable for up to 100% of the wage garnishment amount and face severe penalties.
So what's an employer's best approach to help them stay in compliance? They have a variety of ways they can stay current, such as:
- Maintaining updated wage garnishment tools, resources and contacts.
- Creating strong relationships between the company, employees, garnishors, agencies and the courts.
- Participating in conferences or programs/initiatives designed to improve the garnishment process.
- Monitoring state and federal legislation with wage garnishment implications.
Are wage garnishments still processed on paper?
Not all of them are—and that's good news. Many agencies are now using electronic methods for issuing orders and making payments, resulting in greater efficiency, streamlined processes and reduced costs. For example:
- Electronic wage garnishment is not only quick and easy, but provides greater security for an employee's personal data.
- Electronic Income Withholding Orders (e-IWO) allow states to electronically send IWOs, while employers can accept or reject them electronically.
So wage garnishments aren't nearly as simple as they appear. Employers face a number of hurdles, and need to develop wage garnishment procedures that are specifically tailored to their industry, their employees and their locations.