The landscape of wage garnishment for child support is constantly changing. Here are the latest trends.
If one of your employees faces a wage garnishment for child support, it's up to you as the employer to make sure the withholding from their paycheck is handled properly. If you fail to comply with a wage withholding order for child support, you could be liable for missed payments, penalties and damages.
Figuring out exactly how to handle a child support garnishment isn't always obvious, especially since federal, state and local laws can vary. In particular, there is a growing trend of managing the process electronically. Here's what you need to know about this important payroll topic.
The Current Landscape
When it comes to collecting child support, wage withholding is by far the most common approach. In 2018, 75% of the $32.3 billion collected for child support came from employee wage withholding. Since this is such an important source of child support, employers pay a vital role in getting child support collected in the United States.
At the federal level, child support wage garnishment is overseen by the Consumer Credit Protection Act (CCPA). This law sets maximum limits for how much can be taken out of an employee's pay for garnishments like child support and consumer type debt.
Employers also need to pay attention to state regulations, as they may contain different rules around maximum withholding limits, as well as the prioritization of multiple garnishments and response requirements. Each state also has different rules for whether an employer can collect a fee from employees to cover the administrative expense of processing the garnishment and, if so, how they can structure that fee.
For employers located across multiple regions, these regulations can be difficult to track, especially since several state governments have made changes recently.
Other Changing Legislation
In 2018, ADP reviewed 815 bills that included the terms "garnishment" and/or "child support." In addition to the shift to electronic payments, other possible changes on the horizon are as follows:
- Indiana, Mississippi and Missouri are considering allowing restricted driver's licenses for employees behind on support. This would permit employees to drive to work and continue making payments rather than having their licenses fully suspended.
- Missouri introduced legislation proposing that no individual should be imprisoned for failing to pay child support.
- Montana may change their withholding laws for employees with multiple obligations. The payments would be prorated across the different cases and would not necessarily have to be delivered in the sequence in which they were served.
- South Carolina is in the process of implementing their one centralized location for employers to remit payments, and has already implemented electronic income withholding order (e-IWO) processing. The state intends to have all processes fully implemented by the end of 2019. Employers should wait until they are notified by the state before they redirect payments.
- New York, North Dakota and Virginia have been considering legislation that would require employers to report certain independent contractors to the state for child support enforcement.
As of August 2019, 16 states have passed mandates to require child support payments to be submitted to the state disbursement units via EFT (Electronic Funds Transfer). Some states have mandates based on thresholds of employees or order volume. If you don't, your firm could owe an extra penalty. Washington was the latest state to make this change in 2019 and charges $100 per payment for noncompliance.
The remaining states will allow employers to remit payment by either check or EFT. For an updated map of the payment landscape and links to where you can submit payments electronically, you can visit this resource provided by the Office of Child Support Enforcement (OCSE).
Income withholding orders (IWOs) are also shifting to electronic options via the e-IWO process. There were over 1.9 million e-IWOs processed in 2017, which is up from roughly 1.6 million in 2015. Since 2008, over 9 million e-IWOs have been processed.
Lump Sum Payments
Lump sum payments to employees are another potential trouble spot for employers handling wage garnishments. This category includes payments like termination pay, bonuses, commissions and awards.
These payments are also considered income for child support. The timing of when you need to report income and manage the withholding depends on the state. Nineteen states have particularly detailed requirements for lump sum payments.
Seven states instruct employers to follow best practices or the original garnishment order and the remaining states do not have specific rules for lump sum payments. The OCSE published a guide where you can look up the rules for each state.
Child Support Portal
Another key employer responsibility is ensuring states have accurate employee contact information for a variety of child support-related processes. The OCSE operates an online portal where you can update and certify employee information for wage garnishment around:
- Payroll/income withholding orders
- Verification of employment
- Worksite address
- Upcoming lump sum payments
Through this electronic portal, you can keep records up-to-date and avoid misdirected mail from the state agencies.
For more information, listen to ADP's webinar, Workplace Spotlight: Strategies for Wage Garnishment Compliance, which is available on-demand.