New Pay Options Can Affect How You Garnish Wages
Do you let your employees access their wages before payday? If so, this article offers help with processing their wage garnishments correctly. This article was written in partnership with Vicki Contreras, Sr. Director, Org Enablement, ADP compliance and shared services team.
One of the most attractive benefits you can offer employees is early access to their earned wages. This benefit allows them to cover unexpected expenses without having to borrow money from friends or family or pay late or overdraft fees. They also don't have to resort to predatory payday loans.
Two of the most popular ways to offer this benefit are through earned wage access (EWA) and daily pay. Each of these options comes with its own protocol for wage garnishment.
Earned wage access
EWA lets your employees access earned wages before regular payday. In some cases, the system may limit the times they can do so within a single pay period. Or, it may limit the amount of money they can take (for example, 50% of wages earned to date).
In most cases, the EWA is not provided by the employer; therefore, payroll taxes and wage garnishments are not typically withheld from EWA payments. Instead, these deductions are made on the scheduled pay date and prioritized over recouping any money previously taken by the employee.
Daily pay is an attractive option when hiring gig workers and temporary employees. Most systems treat these payments like regular payroll, except that the employee is accessing earnings daily instead of waiting for a scheduled payment date. As such, the payments are subject to having the same taxes and garnishments withheld as regularly scheduled payroll checks. The maximum withholding amount can be a percentage of the paycheck or a daily limit.
With daily pay frequencies, some state and agency regulations could require you to process and send wage garnishment payments daily.
Most states allow employers to take a nominal fee when garnishing wages for child support. Some also allow employers to take fees for other types of wage garnishments.
For child support, some states have imposed a monthly limit on such fees. But more than 30 states have not yet done so—meaning employers can take a fee each time they process a payment (or withholding transaction), including garnishment payments made on a daily basis for daily pay. So, it is possible you can take the fee every day, even though it is probably not what the state originally intended. You may wish to consult your legal advisor on this issue.
Processing daily payments
If you implement daily payments, be sure your system handles the process correctly. Be certain you are withholding the proper taxes, required deductions, and wage garnishments—and that you are basing the amounts on the correct pay frequency.
When using an outside vendor for EWAs, you may not be involved when an employee makes a request for EWA. You may not even be aware the employee made the request. The vendor handles both the request and the payment and typically assumes all costs, risks and obligations. Outside vendors may not view their offerings as a payment of wages (i.e., the vendor is not the employer). They also may not feel that any additional withholding applies—but taxes, deductions and wage garnishments must be withheld on the normally scheduled pay date. The employer remains responsible for handling these withholdings and needs to determine the correct approach when partnering with a vendor for EWAs.
ADP helps employers reduce their administrative burden while helping improve compliance.
To find out more about ADP's EWA option, as well as the benefits of offering EWA to your employees, review this report or this webcast.