Debunking Wage Garnishment Myths

Employers in the U.S. today must navigate an unorganized amalgam of federal and state legislation, agency regulations, policies and sometimes inconsistent case law to avoid costly penalties for noncompliance, not only with respect to their specific business, but also with respect to their requirements as employers generally.  In the area of wage garnishments, evolving state and federal requirements can blindside businesses that are inexperienced in processing wage garnishments.

Fortunately, many U.S. companies understand the basics of wage garnishments:  When an employee owes a debt, his or her employer receives a wage garnishment order requiring the company to withhold a portion of that employee’s wages until the debt is paid in full.  While that sounds straightforward, confusion and misperceptions can arise when you dive deeper into wage garnishment compliance.

With that backdrop, let’s dive deeper to see where five common myths meet reality:

Myth #1:

All wage garnishments are the same.

In fact, the reasons behind an order to garnish an employee’s wages can vary greatly – from outstanding student loans, child support or bankruptcy to tax levies, creditor garnishments and wage assignments.  Creditors and employers must determine how much of an employee’s wages will be applied toward a specific debt.

Myth #2

It’s simple to comply with wage garnishment requirements.  

With so many different laws, other requirements and contacts at the federal, state and local levels, staying on top of wage garnishments can create an administrative challenge – especially for businesses operating in multiple states.  Employers can potentially be liable for 100 percent of an employee’s wage garnishment if processed incorrectly, making businesses especially vulnerable to penalties for noncompliance.

Myth #3

There is no new legislation on the horizon that could impact how businesses process wage garnishments.

The American Payroll Association (APA) is currently working with the Uniform Law Commission (ULC) to pursue standards for processing wage garnishments in order to simplify how businesses handle certain garnishment orders.  While this is just one example, any future legislation stemming from this initiative could significantly change the way businesses manage wage garnishments nationwide.

Myth #4

Wage garnishments are a paper-based function.

In fact, to keep pace with a broad range of legislative updates, many businesses are transitioning to electronic wage garnishment processes.  A great example here is the fact that the total volume amount of electronic income withholding orders (e-IWOs) increased from 926,373 in 2013 to 1,608,119 in 2015, according to The Federal Office of Child Support Enforcement.

Myth #5

Limited quality data exists about wage garnishment trends and who they affect.

As wage garnishments become easier to track and process electronically, it’s becoming easier for some organizations to collect and analyze large sets of wage garnishment data and identify national, regional and industry-specific trends.  For example, a study by the ADP Research Institute^®, “Garnishment: The Untold Story,” explores wage garnishment trends and offers insights on the demographics and U.S. industries most affected.

Armed with the facts about wage garnishments, employers can refine their compliance strategies to help reduce the risk of fines and penalties.  In addition, businesses with a deeper understanding of wage garnishment requirements can also help reduce the stress, anxiety and embarrassment often felt by employees facing garnished wages.