What's behind recent activity in wage garnishment legislation? In some parts of the country, more than seven in every 100 U.S. employees had their wages garnished, according a 2014 study commissioned by Propublica. The study of 13 million employees was based on data from 2011, 2012 and 2013.
New Ground Rules
Let's look at how the rules of the game changed in 2016 for three example states. In California, Michigan and Missouri, state wage garnishment legislation has changed garnishment regulations in ways that could affect employers as well as employees in 2016.
In California, SB 501 implemented new garnishment restrictions that take effect on July 1, 2016. SB 501 changes the maximum amount for a garnishment to the lesser of 25 percent of the employee's weekly disposable earnings or 50 percent of the amount by which the employee's weekly disposable earnings exceeds 40 times the California minimum hourly wage.
A change made effective in October 2015 will affect Michigan employers. New garnishment guidelines affect employers responsible for administering "periodic garnishments." Previously in Michigan, such garnishments automatically expired after six months. Now they will continue until the judgment is fully paid. Creditors must supply a statement to employers at least once every six months showing the status of the judgment.
In Missouri, the previous law included an automatic garnishment expiration period, usually between 30 and 180 days. If the judgment was not paid in that time frame, the creditor was required to restart the process to collect any remaining funds. The new regulation, Rule 90.01(e) is pursuant to a Missouri Supreme Court decision, which revised garnishment rules effective January 1, 2016 to allow for continuous wage garnishments that remain in effect until the judgement is paid in full or until the employment relationship is terminated. A related Rule 90.07 requires employers to identify all garnishments in place to creditors and to inform them when higher-priority garnishment is satisfied, dismissed or when the employee is terminated.
HR Departmental Impact
Workflow for handling of garnishment orders can vary greatly from employer to employer.
For smaller firms operating in a single court's jurisdiction, it may be possible to consult with an attorney to verify local court and state rules, and then set up a series of calendar alerts. Those alerts signify various deadlines and time periods applicable to the order for a particular employee. HR department-initiated changes to payroll settings typically accompanies those alerts. Such alerts need to be updated when new regulations come into effect, such as those in Missouri, Michigan and California.
Larger firms with employees in multiple states and multiple courts must adopt more automated methods, since manual calendar settings and spreadsheets don't scale well. Specialty firms can act as registered agents for garnishment orders. Legal service is made to the registered agent, which then forwards fully authorized orders to employers.
Garnishments can impose significant hardships on some employees, so HR departments can consider hiring internal specialists who have a deeper understanding of the law and can counsel employees through potentially difficult situations.
While a very small firm operating in a single jurisdiction with only a few employees might be able to comply with garnishment rules, there still remains some measure of risk. Missed deadlines, failure to garnish the proper amount or failure to honor higher-priority debts first can, in some states, risk making employers responsible for the debt themselves.
There are a few areas where compliance means an automated rules engine instead of an extremely diligent payroll accountant. For larger employers, processing garnishments is one such instance — and it's a clear one.
There is little doubt that without specialized software and services support, it would not be possible to address the twists and turns that regulations take as courts and legislatures seek to strike a tolerable balance between employee consumer debt burden and the law.