Payroll Articles
Garnishment of Wages & Tax Levy
Involuntary Deductions
Involuntary payroll Deductions are those over which an employer or Employee has little or no control. The employer is required by law to deduct a specifc dollar amount of the Employee's pay and remit it to a person or agency to satisfy the law. If the employer fails to deduct and remit that amount the emplyer will generally be subject to a penalty equal to the amount required plus possible fines and interest.
A common problem for employers is determining Deduction amounts when several orders for involuntary
Deductions are received against an Employee's wages. If there is not enough pay left in the Employee's
wages, after any exempt amounts have been taken into consideration, to pay all the orders, the employer
must decide which order has highest priority of the orders.
Tax levy
Employees who fail to pay their taxes may become subject to a federal or state tax levy. The levy requires their employer to deduct the amount claimed from their wages and remit it to the proper government agency. The employer is faced with the task of determining the amount of the Employee's wages that is subject to the levy; and whether there are other claims on the Employee's wages that take priority over the levy.
Federal tax levy
A federal tax levy is accomplished by garnishing an Employee's wages to the extent that they are not exempt from levy. The Employee's employer receives notice of the levy when the IRS sends Form 668-W, Notice of levy on Wages, Salary, and Other Income informing the employer of the amount of the levy and the employer's obligation to withhold and remit thelevy amount. This form is in six parts. Parts 2-5 must be given to the Employee. Part 2 is the Employee's copy of the levy notice. Parts 3-5 require the Employee to provide information to the employer and the IRS regarding his or her tax filing status and any dependents who can be claimed as personal exemptions. Parts 3 and 4 must be returned to the employer within three days of the date the employer receives the form. The employer then sends Part 3 to the IRS after completion and keeps Part 4. Part 5 is the Employee's copy of the tax filing status and exemption information. Part 6 is retained by the IRS.
Priority vs. other attachment orders
Tax levies must be satisfied before all other Garnishment or attachment orders, except for Child Support Withholding orders in effect before the date of the levy. Where more than one entity has levied an Employee's wages and there are insufficient nonexempt funds to satisfy all of them, the one received first by the employer must be satisfied before any others, unless the IRS instructs otherwise.
Figuring the amount to deduct and remit
All amounts paid to an Employee are subject to levy
unless specifically exempt under the Internal Revenue Code or IRS regulations. Federal tax levies are not governed by the exemption rules that apply to Garnishments or Child Support Withholding orders under the Consumer Credit Protection Act. These are the payments that are exempt from a federal tax levy:
· unemployment compensation benefits;
· workers' compensation benefits;
· annuity and pension payments under the Railroad Retirement Tax Act and to certain armed services
personnel;
· certain armed service-connected disability payments;
· certain public assistance payments (welfare and supplemental Social Security benefits); and
· amounts ordered withheld under a previously issued court order for child support.
Some payments are no longer exempt
Under the Taxpayer Relief Act of 1997, the IRS can attach a continuing levy on up to 15% of certain payments that had been totally exempt from levy, including: federal payments not based on income or assets of the payee, unemployment compensation benefits, workers' compensation benefits, annuity and pension payments under the Railroad Retirement Tax Act, federal Employee wage and salary payments up to the exempt amount, supplemental Social Security benefits, and state or local public assistance payments.
In addition, each Employee is entitled to an amount exempt from levy equal to the Employee's standard
Deduction and personal exemptions including one for the Employee divided by the number of pay periods in the year. Employees paid on a daily basis have their standard Deduction and personal exemption amounts divided by 260, the number of workdays in a year (52 weeks x 5 workdays per week). Employees who are paid on a one-time basis or on a recurrent, but irregular basis are entitled to the weekly exempt amount for each week to which the payment is attributable.
The value of the Employee's standard Deduction and personal exemptions is determined for the year the
levy is received. If the Employee does not submit a verified, written statement regarding the Employee's tax
filing status and personal exemptions (Parts 3 and 4 of Form 668-W serve this purpose), the employer must
figure the exempt amount as if the Employee's filing status is married filing separately with one personal
exemption. Employers cannot rely on the Employee's Form W-4 to determine the filing status and number
of exemptions. The IRS issues tables for figuring the exempt amount each year as IRS Publication 1494.
Stop withholding payroll Deduction levy
According to Form 668-W, the employer must continue to withhold and make levy payments until it receives Form 668-D, Release of levy/Release of Property from levy. This means the employer may not stop withholding when the payments match the total due the IRS stated on the front of Part 1 of Form 668-W. Withholding must continue because interest and possible penalties continue to accumulate on the amount remaining due after each levy payment is made. Form 668-D will contain the final amount due and release the Employee's wages from levy after that amount is paid.
If the Employee is terminated
If the Employee named on Form 668-W is no longer employed by the employer when the form is received, the employer must note that on the reverse side of Part 3 and return it to the IRS, along with the Employee's last known address. If employment terminates while the levy is in effect, the employer should notify the IRS office where payments have been sent of the termination and the name and address of the Employee's new employer, if known. The employer must deduct and remit any nonexempt amounts contained in severance or dismissal pay provided the Employee.
Employer not liable to Employee for amounts withheld.
If an employer honors a notice of levy (Form 668-W) from the IRS and withholds and pays over nonexempt amounts as instructed, the employer is not liable to the Employee for the amount of wages paid to the IRS.
Penalties for failing to withhold and remit
Employers failing to withhold and pay over amounts not exempt from levy after receiving Form 668-W are liable for the full amount required to be withheld, plus interest from the wage payment date. Any amount paid by the employer as a penalty will be credited against the taxes owed by the Employee. In addition, the employer is liable for a penalty equal to 50% of the amount recoverable by the IRS after the failure to withhold and remit. This penalty is not applicable where there is a genuine dispute as to the amount to be withheld and paid over or the legal sufficiency of the levy.
Withholding for Child Support
Child support order collection is a combined federal/state program, with federal laws providing standards state laws must meet or exceed in order to qualify for federal funding of state child support enforcement. Title IV of the Social Security Act and the Consumer Credit Protection Act provide the legal framework around which state Child Support Withholding laws are constructed. The federal requirements, along with any allowable state variations are:
Maximum amount you can withhold. Under the CSEA, the maximum amount that can be withheld from an Employee's wages for spousal or child support is:
· 50% of the Employee's .disposable earnings. if the Employee is supporting another spouse and/or
children; and
· 60% if the Employee is not supporting another spouse and/or children.
These amounts increase to 55% and 65%, respectively, if the Employee is at least 12 weeks late (i.e., in
arrears) in making support payments. If arrearages are being paid, the total of the current support and the
arrearages cannot exceed the applicable maximum amount. State Child Support Withholding laws may
impose lower limits on the amount that may be withheld, but may not exceed the limits imposed by the CSEA.
Calculating disposable earnings
Disposable earnings are determined by subtracting all Deductions
required by law from an Employee's gross earnings. Deductions required by law include withholding for federal, state, or local income tax, Social Security or Medicare tax, state unemployment or disability tax, and mandated payments for state Employee retirement systems. Voluntary Deductions, such as health and life insurance premiums, union dues, and retirement plan contributions, are not subtracted from earnings to calculate disposable earnings.
Some states allow health insurance premiums to be deducted when
calculating disposable earnings. Wages already subject to withholding for tax levies, bankruptcy orders,
other Child Support Withholding orders, or wage Garnishments are not considered Deductions required by
law. Therefore, they should not be subtracted from gross earnings when determining the maximum amount
subject to Child Support Withholding.
However, if the tax levy, bankruptcy order, etc. has priority over the
current Child Support Withholding order, the amount required to be deducted under the order having priority
must be taken into account when determining whether the CSEA maximum has been reached.=
One Time Payments
The CSEA definition of earnings subject to the limits on Child Support Withholding includes all compensation paid or payable for personal services.
Tips
Tips given directly to Employees by customers are not considered earnings for the purpose of determining disposable earnings, whereas service charges added to the bill that are later given to the Employee by the employer are earnings. Employers should check the state laws in the states where they operate regarding the inclusion of tips as earnings.
Priority of Orders
Orders to withhold wages for child support take priority over all other Garnishments or attachments issued against the Employee's wages except for tax levies received by the employer before the Child Support Withholding order or bankruptcy court orders. Under the federal Bankruptcy Code, debts due for child support are nondischargeable debts.
When order takes effect
The employer must put the wage withholding order into effect no later than the first pay period beginning after 14 working days following the mailing of the notice to withhold to the employer. States may require that the order take effect sooner. The employer must continue to withhold until notified otherwise in writing by the court or agency involved.
Remittance
The employer must send payment of the withheld wages to the party noted on the order within seven business days of the date wages are paid to the Employee. State law may set a shorter time limit for making payment. Timeliness is determined by the postmark if the payment is mailed, or if the payment is transmitted electronically, by the date the transmission is proven to have been initiated by the employer.
Firing an Employee who has a withholding order
The employer is prohibited from discharging, disciplining, or otherwise discriminating against an Employee because the Employee's wages are subject to withholding for child support. Violators can be fined an amount set by state law.
Fees
Employers may charge the Employee an administrative fee for processing the wage withholding order each pay period. The maximum amount is set by state law, and the fee must be withheld from the Employee's other wages, not the child support payment.
Employee terminates
If an Employee whose wages are subject to a Child Support Withholding order separates from employment, the employer has a certain amount of time set by state law to notify the child support enforcement agency of the Employee's last known address and, if known, the name and address of the Employee's new employer. If the Employee has been injured or is ill and cannot work, the employer should notify the court or agency that sent the withholding notice and provide the Employee's name and the name and address of the entity paying workers' compensation or disability benefits. If the benefits are not being paid by the employer, the employer is not responsible for withholding.
Penalties
If the employer fails to withhold the amount required the employer is liable for the full amount not withheld and any fine set by state law. The employer need not alter its pay periods to comply with the law. It can contact the agency administering the order to arrange a revision of the amount to withhold that fits the employer's pay cycle.
Enforcement of orders from other states
A problem for employers is handling Child Support Withholding orders issued by a court or agency in a state other than the state where the Employee works. Under UIFSA §501, an employer must put into effect a Child Support Withholding order that it receives directly from another state's child support enforcement agency so long as the order appears "regular on its face". Registration of the order with the child support enforcement agency in the Employee's work state is not necessary under UIFSA. Under UIFSA, employers must follow the rules as stated on the order that specify:
· the duration and amount of periodic payments of current child support, stated as a specific
amount;
· the person or agency designated to receive payments and the address to which the payments are
to be forwarded;
· medical support, whether in the form of periodic cash payments, stated as a specific amount, or
ordering the noncustodial parent to provide health insurance coverage for the child under a policy
available through the parent's employer;
· the amount of periodic payment of fees and costs for a support enforcement agency, the issuing
court, and/or the custodial parent's attorney, stated as specific amounts; and
· . the amount of periodic payments of arrears and interest on arrears, stated as specific amounts.
Employers must follow the rules of the Employee's work state when determining:
· the employer's administrative fee for processing an income withholding order;
· the maximum amount permitted to be withheld from the noncustodial parent's income;
· the time periods within which the employer must implement the withholding order and forward
the amount withheld; and
· the priorities for withholding and allocating income withheld for multiple withholding orders
States and UIFSA
All the states adopted UIFSA & PRWORA before 1/1/99. The PRWORA also specifically addressed several out-of-state order issues by requiring state laws to mandate
that employers follow the income withholding law of the noncustodial parent's work state in determining:
· the employer's administrative fee;
· the maximum amount permitted to be withheld for child support;
· the time period for implementing the withholding order and remitting withheld amounts;
· the priorities for withholding and allocating income withheld for multiple withholding orders;
· any withholding terms or conditions not specified in the order.
State laws must also provide that employers who comply with an out-of-state income withholding order
that is "regular on its face" are not liable to any person or agency for withholding or making payments in
compliance with the order.
Multiple Orders
If an employer receives more than one Child Support Withholding order for an Employee, state law governs how they must be handled. If the orders are from different states, the law in the state where the Employee works applies. These considerations generally come into play when the total withholding amount required under all orders exceeds the maximum allowed under the applicable state law.
States handle this problem in one of several ways. The first method is to allocate the available wages to
each order depending on its percentage in relation to the total amount required to be withheld. Another
method is to allocate the available wages equally toward each order until each order is individually complied with or the maximum amount of allowable withholding is reached. The final method (currently used only in Montana) is to give the orders priority depending on when they were received by the employer.
Employee Complaints
Sometimes the employer is confronted by an Employee whose wages have been withheld to pay child support and who claims either that the amount withheld was wrong or that the Employee received no notice before withholding began. In either situation, the employer is obligated to continue withholding according to a valid withholding order unless it receives notification in writing from the agency or court issuing the order that a change is necessary. The Employee should be told to contact the agency or court issuing the order if a mistake has allegedly been made.
Orders for Reservists
According to OCSE , the employer should notify the state child support agency either by calling, writing, or faxing when it is notified by an Employee/reservist subject to a Child Support Withholding order that he or she is being mobilized. Child support agencies around the country have been asked to give the highest priority to reviewing cases involving military personnel who are being activated, and to redirect income withholding notices from the civilian employers involved to the appropriate office of the Department of Defense so that the child support payments would not be interrupted.
As reservists return home, the Department of Defense will notify the child support agencies when an individual transfers from military status to civilian status. Once an Employee returns to work, the employer should reactivate the income withholding order it has on file. Some states may send a letter or issue a new income withholding order, but most of them will expect the employer just to reinstitute existing orders. If an
employer has any questions, it should contact the state agency involved.
Independent Contractors
Payments to be made to Independent Contractors who perform services for a business constitute property that is subject to a Child Support Withholding order.
Medical orders
All the states have passed laws allowing courts to require medical child support as
part of a child support order and requiring employers to enroll children and withhold premiums from the
Employee's pay to the same extent as other Employees with similar coverage.
New child support orders
issued by a state child support agency must include a medical support provision. All employer-sponsored group health plans are required to comply with state laws regulating medical child support and to honor "qualified medical child support orders". However, the plans cannot be forced to offer any new or different benefits.
"Qualified medical child support orders" are judgments or orders issued by a court or an administrative agency, including those approving settlement agreements, that recognize the right of a child to be covered under the same group health plan for which the noncustodial parent is eligible. They also must specify:
· the name and address of the noncustodial parent;
· the name and address of any children to be covered by the order;
· a description of the coverage each child must be provided, or the way in which it will be determined;
· the length of time coverage must be provided; and
· each plan governed by the order.
Addresses of each State Child Support Agency
Alabama
Alabama Department of Human Resources
Child Support Enforcement Division
50 Ripley St.
Montgomery, AL 36130-1801
(334) 242-9300
www.dhr.state.al.us/csed/default.asp
Alaska
Child Support Enforcement Division
Department of Revenue
550 West Seventh Ave., Ste. 310
Anchorage, AK 99501-6699
(907) 269-6901
877-269-6685
www.csed.state.ak.us/
Arizona
Division of Child Support Enforcement
3443 N. Central Ave., 4th Fl.
Phoenix, AZ 85012
(602) 252-4045
www.de.state.az.us/links/dcse/index.html
Arkansas
Office of Child Support Enforcement
400 E. Capitol
P.O. Box 8133
Little Rock, AR 72203
(501) 682-8398
www.accessarkansas.org/dfa/childsupport/employer.html
California
Department of Child Support Services
P.O. Box 944245
Sacramento, CA 95244-2440
(916) 654-1532
www.childsup.cahwnet.gov/default.htm
Colorado
Division of Child Support Enforcement
1575 Sherman St., 2nd Fl.
Denver, CO 80203-1714
(303) 866-5994
www.childsupport.state.co.us/
Connecticut
Department of Social Services
Child Support Enforcement Program
25 Sigourney Street
Hartford, CT 06105-5033
(860) 842-1508
www.dss.state.ct.us/svcs/csupp.htm
Delaware
Division of Child Support Enforcement
P. O. Box 904
New Castle, DE 19720
(302) 577-7171
www.state.de.us/dhss/dcse/index.htm
District of Columbia
Child Support Enforcement Program
Department of Human Services
800 9th St. SW, 2nd Fl.
Washington, DC 20024
(202) 724-1444
www.csed.dcgov.org
Florida
Office of Child Support Enforcement
Department of Revenue
P.O. Box 8030
Tallahassee, FL 32314-8030
(800) 622-5437
http://sun6.dms.state.fl.us/dor/childsupport/
Georgia
Child Support Enforcement
State Department of Human Resources
2 Peachtree St., N.W., 15th Fl.
Atlanta, GA 30303
(404) 657-3851
www.div.dhr.state.ga.us/dfcs_cse
Hawaii
Child Support Enforcement Agency
Dept. of Attorney General
601 Kamokila Blvd., Ste. 251
Kapolei, HI 96707
(808) 587-4250
www.hawaii.gov/csea/csea.htm
Idaho
Child Support Program
Department of Health and Welfare
450 W. State St., 5th Fl.
Boise, ID 83720-0036
(208) 334-2479
www.idahochild.org
Illinois
Division of Child Support Enforcement
Department of Public Aid
509 S. 6th St.
Springfield, IL 62701
(800) 447-4278
www.state.il.us/dpa/illinois_child_support.htm
Indiana
Bureau of Child Support
402 W. Washington St., Room W360
Indianapolis, IN 46204
(317) 233-5437
www.state.in.us/fssa/html/programs/dfcsupport.html
Iowa
Child Support Recovery Unit
Department of Human Services
Hoover Bldg., 5th Fl.
Des Moines, IA 50319
(515) 242-5530
(888) 229-9223
www.dhs.state.ia.us/HomePages/DHS/csrunit.htm
Kansas
Department of Social and Rehabilitation Services
300 S.W. Oakley St.
1st Fl., Biddle Bldg.
Topeka, KS 66606
(785) 296-3237
www.srskansas.org/srslegalservice.html
Kentucky
Child Support Enforcement Commission
Office of the Attorney General
700 Capitol Ave., Ste. 118
Frankfort, KY 40601
(800) 248-1163
www.law.state.ky.us/childsupport/default.htm
Louisiana
Support Enforcement Services Program
Department of Social Services
P.O. Box 94065
618 Main St.
Baton Rouge, LA 70804
(225) 342-4780
www.dss.state.la.us/
Maine
Division of Support Enforcement
Department of Human Services
11 State House Station
Augusta, ME 04333
(207) 287-2826
www.state.me.us/dhs/main/bfi.htm
Maryland
Child Support Enforcement Administration
Department of Human Resources
311 W. Saratoga St.
Baltimore, MD 21201
(800) 234-1528
www.dhr.state.md.us/csea/index.htm
Massachusetts
Massachusetts Department of Revenue
Child Support Enforcement Division
51 Sleeper Street
P. O. Box 9492
Boston, MA 02205-9492
(800) 332-2733
www.state.ma.us/cse/cse.htm
Michigan
Office of Child Support
Michigan Family Independence Agency
235 S. Grand Ave., Ste. 1406
Lansing, MI 48933
(517) 373-7570
www.mfia.state.mi.us/childsupp/cs-index.htm
Minnesota
Child Support Enforcement Division
Department of Human Services
444 Lafayette Rd., 4th Fl. S.
St. Paul, MN 55155-3846
(651) 296-2542
www.dhs.state.mn.us/ecs/Program/csed.htm
Mississippi
Division of Child Support Enforcement
Department of Human Services
750 N. State Street
Jackson, MS 39205
(601) 359-4863
(800) 948-4010
www.mdhs.state.ms.us/cse.html
Missouri
Division of Child Support Enforcement
Department of Social Services
P.O. Box 2320
227 Metro Dr.
Jefferson City, MO 65102-2320
(573) 751-4301
www.dss.state.mo.us/cse/cse.htm
Montana
Child Support Enforcement Division
Department of Public Health and Human Services
3075 N. Montana Ave., Ste. 112
P. O. Box 202943
Helena, MT 59620-2943
(406) 442-7278
www.dphhs.state.mt.us/divisions/cse/csed.htm
Nebraska
Child Support Enforcement Office
Department of Health and Human Services
P.O. Box 94728
301 Centennial Mall So., 5th Fl.
Lincoln, NE 68509-4728
(402) 479-5555
www/hhs.state.ne.us/cse/cseindex.htm
Nevada
Child Support Enforcement Program
Human Resources Division
100 N. Carson St.
Capitol Complex
Carson City, NV 89701-4717
(702) 687-4744
www.hr.state.nv.us/ag/agpub/chldsupp.htm
New Hampshire
Division of Child Support Services
Department of Health and Human Services
Health and Human Services Bldg.
129 Pleasant St.
Concord, NH 03301
(603) 271-4427
www.dhhs.state.nh.us
New Jersey
Department of Human Services
Division of Economic Assistance
Office of Child Support and Paternity Programs
State Services
Box CN 716
Trenton, NJ 08625
(877) 655-4371
www.njchildsupport.org
New Mexico
Child Support Enforcement Division
Department of Human Services
P.O. Box 25109
2025 S. Pacheo
Santa Fe, NM 87504
(505) 827-7200
www.state.nm.us/hsd/csed.html
New York
Division of Child Support Enforcement
New York State Department of Family Assistance
40 N. Pearl St.
Albany, NY 12243
(518) 474-9081
www.dfa.state.ny.us/csms/
North Carolina
Office of Child Support Enforcement
Division of Social Services
Department of Health and Human Services
100 E. Six Forks Rd.
Raleigh, NC 27603-1393
(919) 571-4120
www.dhhs.state.nc.us/dss/cse/cse_mission.htm
North Dakota
Child Support Enforcement Division
Department of Human Services
1929 N. Washington St.
P.O. Box 7190
Bismarck, ND 58507-7190
(701) 328-3582
http://lnotes.state.nd.us/dhs/dhsweb.nsf/
Ohio
Office of Child Support
Ohio Department of Human Services
State Office Tower
30 E. Broad St., 31st Fl.
Columbus, OH 43266-0423
(614) 752-6561
www.ohio.gov/odhs/Ocs/index.htm
Oklahoma
Child Support Enforcement Division
Department of Human Services
Capitol Station, Box 53552
Oklahoma City, OK 73152
(405) 522-5871
www.okdhs.org/childsupport/
Oregon
Department of Justice
Division of Child Support
Department of Human Resources
1495 Edgewater St., NW
Salem, OR 97304
(503) 986-6090
www.afs.hr.state.or.us/rss/childsupp.html
Pennsylvania
Bureau of Child Support Enforcement
Department of Public Welfare
P.O. Box 2675
Harrisburg, PA 17105-2675
(717) 787-1894
www.pachildsupport.com/
Puerto Rico
Child Support Enforcement Program
Department of Social Services
P.O. Box 3349
San Juan, PR 00902-3349
(787) 767-1500
Rhode Island
Department of Administration
Division of Taxation-Child Support Enforcement
77 Dorance St.
Providence, RI 02903
(401) 222-3845
www.childsupportliens.com/RI/index.html
South Carolina
Child Support Enforcement Division
Department of Social Services
P.O. Box 1469
Columbia, SC 29202-1469
(800) 768-5858
www.state.sc.us/dss/csed/
South Dakota
Office of Child Support Enforcement
Department of Social Services
700 Governor's Dr.
Pierre, SD 57501-2291
(605) 773-3641
www.state.sd.us/social/CSE/ OCSE .htm
Tennessee
Department of Human Services
Citizens Plaza Bldg., 12th Fl.
400 Deadrick St.
Nashville, TN 37248-0001
(800) 838-6911
www.state.tn.us/humanserv/
Texas
Child Support Division
Office of the Attorney General
P.O. Box 12548
Austin, TX 78711-2548
(512) 460-6000
(800) 252-8014
www.oag.state.tx.us/child/mainchild.htm
Utah
Office of Recovery Services
Department of Human Services
515 E. 100 S.
P. O. Box 45011
Salt Lake City, UT 84145-0011
(801) 536-8901
www.ors.state.ut.us/css/mainch.htm
Vermont
Office of Child Support
Agency of Human Services
103 S. Main St.
Waterbury, VT 05671-1901
(800) 786-3214
www.ocs.state.vt.us/
Virginia
Division of Child Support Enforcement
Department of Social Services
730 E. Broad St.
Richmond, VA 23219
(804) 692-1900
www.dss.state.va.us/division/childsupp
Washington
Division of Child Support
Department of Social and Health Services
P.O. Box 9162
Mail Stop HJ-31
Olympia, WA 98507-9162
(360) 664-5200
www.wa.gov/dshs/dcs/index.html
West Virginia
Bureau for Child Support Enforcement
Department of Health and Human Resources
Bldg. 6, Rm. 817
State Capitol Complex
Charleston, WV 25321
(304) 558-4665
www.wvdhhr.org/bcse
Wisconsin
Department of Workforce Development
Division of Economic Support
Bureau of Child Support
1 W. Wilson St., Rm. 382
P.O. Box 7935
Madison, WI 53707-7935
(608) 266-9909
www.dwd.state.wi.us/bcs/
Wyoming
Child Support Enforcement Program
State Department of Family Services
2300 Capitol Ave.
Hathaway Bldg., 3rd Fl.
Cheyenne, WY 82002-0490
(307) 777-6948
http://dfsweb.state.wy.us/cse.home/cs.htm
Creditor Garnishments
When an Employee (debtor or obligor) has a debt that remains unpaid, a wage Garnishment is one legal means by which the person who is owed the money (creditor or obligee) can obtain payment. This method requires that the Employee's employer withhold the unpaid amount from the Employee's wages. In some states, a wage Garnishment is known as a .wage attachment. or .income execution. The employer can be required to withhold a portion of the Employee's wages for a wage Garnishment only if the creditor first brings a court proceeding where proof of the debt is offered and the Employee has a chance to respond.
Federal Garnishment limits
Creditor Garnishments are also governed by a joint federal/state scheme. The federal Consumer Credit Protection Act (Title III) places restrictions on states in their regulation of creditor Garnishments, both on the amount that may be garnished; and on the freedom to discharge an Employee because the Employee's wages have been garnished.
Garnish Limits
The CSEA states that the maximum amount of an Employee's .disposable earnings. that can be garnished to repay a debt is the lesser of:
· 25% of the Employee's disposable earnings for the week; or
· the amount by which the Employee's disposable earnings for the week exceed 30 times the federal
minimum hourly wage then in effect.
STATE LAWS MAY STILL APPLY
The Garnishment limits in the CSEA preempt state laws
to the extent the state laws allow greater amounts to be garnished. But state law will apply if
the maximum amount subject to Garnishment is lower than the federal maximum or if the state
does not allow creditor Garnishments at all as is the case in Texas.
Disposable earnings are determined by subtracting all Deductions required by law from an Employee's gross earnings (wages, commissions, bonuses, sick pay, and periodic pension payments). Deductions required by law include withholding for federal, state, or local income tax, Social Security or Medicare tax, state unemployment or disability tax, and mandated payments for state Employee retirement systems (but not amounts designated for direct deposit into an Employee's bank account). Voluntary Deductions, such as health and life insurance premiums, union dues, and retirement plan contributions, are generally not subtracted from earnings to calculate disposable earnings. In some states, health insurance contributions may be included in the calculation of disposable pay, especially if the contributions are mandated under a child support order.
TIPS MAY OR MAY NOT BE EARNINGS
Tips given directly to Employees by customers are not considered earnings for the purpose of determining disposable earnings, whereas service charges added to the bill that are later given to the Employee by the employer are earnings. Employers must check the state laws in the states where they operate.
Limits on Multiple Orders
The federal Garnishment maximum applies no matter how many Garnishments are received for an Employee. If the maximum is already being withheld when a second Garnishment is received, nothing may be withheld for the second Garnishment. If more than the maximum is withheld and the Employee receives less than the required minimum wage because of the excess withholding, the employer may be subject to penalties for violating the Fair Labor Standards Act.
Exception for other types of Garnishments
The general limit on Garnishments under the CSEA does not apply to certain types of Garnishments. An exception in the law itself allows for higher maximums for child support withholding orders. The limit does not apply to tax levies, which are governed by the Internal Revenue Code, or to bankruptcy orders. Special provisions are also applicable to Garnishments for delinquent student loans and other federal agency debt collections. In determining an Employee's disposable earnings, wages already subject to withholding for child support, tax levies, or bankruptcy orders are not considered Deductions required by law. Therefore, they should not be subtracted from gross earnings when determining the maximum amount subject to Garnishment. However, if the Child Support Withholding order, tax levy, or bankruptcy order has priority over the creditor Garnishment and constitutes at least 25% of the Employee's disposable wages, no amount can be withheld for the creditor Garnishment.
Termination
Employers are prohibited by the CSEA from terminating an Employee because the Employee's earnings have been subjected to Garnishment for any one indebtedness. Employers that violate this provision can be fined up to $1,000 and/or imprisoned for up to 1 year. This prohibition applies to all Garnishments, including tax levies, bankruptcy orders, and Child Support Withholding orders.
WATCH FOR Employee-FRIENDLY STATE LAWS
While the CSEA provides a minimum standard of Employee protection, it does not preempt state laws that provide greater protection for Employees by increasing the number of Garnishments that can serve as the basis for termination or by prohibiting all terminations because of Garnishment. Some states also protect Employees from discipline by employers that is short of discharge.
Out-of-state Orders
Generally, employers must comply with a Garnishment order issued by a court in another state for an Employee in the employer's state. The procedure and applicable exemptions are those of the state issuing the Garnishment order, not the Employee's home state. However, most states have laws prohibiting creditors from deliberately going outside the state to get a judgment and Garnishment order and avoid the Garnishment limits of the state where the Employee lives and the underlying debt was incurred.
Employer's responsibilities
When an employer receives a Garnishment order from a court or government
agency, it is bound to comply with the order to withhold and remit the amount demanded, up to the
maximum allowed by law. While preparing to comply, the employer should do the following:
· check to make sure the underlying claim is valid and the amount stated on the order is correct
by contacting the agency or court issuing the order;
· tell the Employee about the Garnishment order to make sure the Employee has received a notice
that Garnishment would be taking place and has had the chance to object;
· tell the Employee about any exemptions that might apply under state or federal law;
· tell the Employee how the Garnishment will affect his or her wages and net pay;
· determine whether the amount demanded in the Garnishment exceeds the maximum allowed by
federal or state law;
· if the Employee is already subject to one or more Garnishment orders, determine their order of
priority and how the available disposable earnings must be allocated; and
· contact legal counsel to review the Garnishment order and answer any outstanding questions
regarding validity, disposable earnings determinations, complying with out-of-state orders, priorities and allocation, etc.
Bankruptcy Orders
Bankruptcy is governed by the federal Bankruptcy Act. Once an Employee voluntarily declares bankruptcy
or is found to be bankrupt by a court, the satisfaction of the Employee's creditors is handled by the "bankruptcy trustee" appointed by the court. Once the Employee's employer receives a bankruptcy order from the trustee under a court-approved plan requiring a certain amount of the Employee's wages to be paid to the trustee to satisfy the Employee's creditors, the employer must stop withholding on any other Garnishments against the Employee.
Bankruptcy orders issued under Chapter XIII of the Bankruptcy Act take priority over any other claim
against the Employee's wages, including federal and state tax levies and Child Support Withholding orders
received before the bankruptcy order. The reasoning behind ceasing all other withholding for Garnishments
once a bankruptcy order is received is that the debts underlying those Garnishments will be paid by the
trustee out of the money withheld under the bankruptcy order.
If an employer continues to withhold and remit in satisfaction of other withholding orders, creditors may
receive double payments and the employer may open itself to a lawsuit brought by the Employee for the
withheld wages. The only time an employer should continue to withhold for other Garnishments is if the
trustee specifically provides instructions to do so. If the creditor is not listed in the bankruptcy order, verify
with the trustee before stopping the Garnishment.
Termination
Federal bankruptcy law prohibits employers from terminating Employees because they become the subject of a bankruptcy proceeding.
Student Loan Collections
Because of the high percentage of students who were failing to repay loans for education granted under the Federal Family Education Loan Program in 1991 Congress amended the Higher Education Act to allow for Garnishment of Employees' wages to repay delinquent loans. Student loan Garnishments are subject to the following restrictions:
Maximum
If the Garnishment is issued by a state guarantee agency, no more than the lesser of 10% of an Employee's disposable earnings or the excess of the Employee's disposable earnings over 30 times the federal hourly minimum wage then in effect may be garnished to satisfy a delinquent student loan unless the Employee consents in writing to a higher percentage. Even though the Higher Education Act limits Garnishments to 10% of an Employee's wages, this limit applies to each individual holder of a student loan. Where an Employee faces multiple student loan Garnishments, the maximum amount that can be garnished in total is the CSEA limit of 25% of disposable earnings or the excess of the Employee's weekly disposable earnings above 30 times the federal minimum hourly wage, whichever is less.
Termination
Employees may not be discharged or otherwise discriminated against because of a Garnishment order to repay a student loan.
Penalties
If an employer fails to comply with a lawful student loan Garnishment order, it is liable for the amount not withheld from wages, as well as punitive damages, court costs, and attorneys. fees. Employers that unlawfully terminate Employees because of a student loan Garnishment may be ordered to reinstate the Employee with backpay and to pay punitive damages and attorneys' fees.
Federal Agency Debt Collections
Because student loans aren't the only type of federal government debts that have been subject to a high percentage of nonpayment, Congress enacted the Debt Collection Improvement Act of 1996. Part of this law allows federal government agencies that administer a program under which they provide money to individuals to garnish the wages of individuals who fail to repay their debt according to their agreement with the agency. These Garnishments can only be applied to nontax debts, since tax debts are collected through tax levies issued by the IRS. This law preempts state laws governing Garnishments.
Maximum amount
The amount of a federal agency loan Garnishment is limited by the Consumer Credit Protection Act as well as the Debt Collection Improvement Act. The amount to be garnished is the lesser of:
· the amount indicated on the Garnishment order up to 15% of the Employee's disposable pay, or
· the amount by which the Employee's disposable pay exceeds 30 times the federal minimum
hourly wage then in effect.
Where an Employee owes multiple debts to one federal agency, the agency may issue multiple withholding
orders for the debts, so long as the total amount garnished does not exceed the limit for one Garnishment.
Under rules issued by the Financial Management Service to implement federal agency wage Garnishments,
employers are required to certify information about the Employee's employment status and disposable
pay (defined as amounts required to be deducted by law and to pay for health insurance) on a form
accompanying the withholding order and to pay over amounts withheld promptly after payday. The
employer must begin withholding within the reasonable period of time indicated in the withholding order. The employer must continue withholding until notified to stop by the agency.
Termination
Employees may not be discharged, disciplined, or otherwise discriminated against because of a Garnishment order to repay a federal agency loan.
Priority
Unless otherwise provided by federal law, federal agency wage Garnishments have priority over other types of withholding orders served on the employer after the federal agency wage Garnishment, except for family support orders. If an Employee's pay is already subject to another type of withholding order when the employer receives a federal agency wage Garnishment, or if a family support withholding order is served on the employer at any time, the amount subject to the federal agency wage Garnishment is the lesser of:
· the amount of the order up to 15% of the Employee's disposable pay or the amount of the Employee's
disposable pay in excess of 30 times the federal minimum wage then in effect, or
· 25% of the Employee's disposable pay minus the amounts withheld under the withholding orders
with priority.
Wage assignments by an Employee that would interfere with or prevent the collection of the debt owed to
the agency through a federal agency wage Garnishment is void unless the Employee makes the assignment
under a family support judgment or order.
Penalties
If an employer fails to comply with a lawful federal agency loan Garnishment order, it is liable for the amount not withheld from wages, as well as punitive damages, court costs, and attorneys' fees. The agency can sue the employer for amounts not withheld. Employers that unlawfully terminate or otherwise discriminate against Employees because of a federal agency loan Garnishment may be ordered to reinstate the Employee with back pay and to pay punitive damages and attorneys' fees.
Federal Wage-Hour Law Restrictions on Deductions
The Consumer Credit Protection Act and the Debt Collection Improvement Act are not the only federal laws regulating the types and amounts of Deductions that may be made from an Employee's wages. The Fair Labor Standards Act, also known as the Federal Wage-Hour Law, places its own restrictions on such Deductions when they bring an Employee's wages below the minimum wage and overtime pay guaranteed by the Act.
Board, lodging, Employee meals and other facilities
Where an Employee voluntarily accepts meals, lodging, or other facilities provided by an employer primarily for the Employee's benefit, the reasonable cost of the facilities may be deducted from wages paid to the Employee, even if the Deduction results in the Employee receiving less than the required minimum wage or overtime pay. Goods and services connected with employment, such as tools, required uniforms, and company-provided security, are not facilities, and Deductions for providing them may be taken only if they do not bring the Employee's wages below the minimum.
If the employer makes a profit from providing the facilities, Deductions for providing them are unlawful
only if the profit reduces the Employee's wages (including the reasonable cost of the facilities) below the minimum. If the Deductions do not reduce the Employee's wages below the minimum, none of the tests
described here have to be considered.
Uniforms
If an Employee is required to wear a uniform while at work that cannot be used as ordinary streetwear and the employer picks up the cost of the uniform and/or its maintenance, the employer cannot deduct any amount of such cost that brings the Employee's wages below the minimum required by the FLSA.
Loans to Employees
Employers can deduct amounts equal to the principal of loans made to Employees from their wages, even if the Deduction reduces the Employee's wages below the required minimum under the FLSA. Deductions for interest on the loan or administrative costs associated with the loan are allowed only if they do not bring the Employee's wages below the required minimum.
Salary advances and overpayments
Deductions to recover salary advances or overpayments due to bookkeeping errors may be taken by the employer even if they reduce the Employee's current wage below the required minimum, but employers should consider spreading out the recovery of amounts overpaid or advanced to reduce the economic hardship on the Employee.
Docking pay for missed work time
Docking or reducing an Employee's pay because the Employee misses work due to lateness can cause special problems where the Employee earns an amount that is close to the minimum wage and is penalized beyond an amount that equals the time actually lost. If the Employee is docked the same amount of pay as time lost, there is no FLSA violation. However, if the Employee is docked an additional amount as a penalty, the employer acts unlawfully if the additional reduction brings the Employee's wages below the minimum required for the hours actually worked.
Deductions for taxes
Amounts withheld from an Employee's pay for federal, state, and local income taxes, as well as the Employee's share of Social Security and Medicare taxes, are considered wages paid to the Employee. The fact the Employee may receive net pay below the FLSA-required minimum does not make these Deductions unlawful. However, the employer may not deduct any amount from an Employee's wages to pay for the employer's share of any tax, including Social Security, Medicare, federal unemployment, and state unemployment and disability taxes.
Garnishments and wage assignments
Employers can deduct amounts from an Employee's wages to satisfy Garnishment orders from a court or government agency or to satisfy a voluntary assignment of wages by an Employee to some third party, even if the Deduction reduces the Employee's wages below the minimum required by the FLSA. The payment of the deducted amounts to the third party is considered the same as payment to the Employee, so long as the employer derives no profit or other benefit from making the Deduction. Also, any amount deducted in excess of the limits on Garnishment contained in the CSEA is not considered wages paid to the Employee and may not reduce the Employee's wages below the required minimum.
Union dues
If required by a union contract, an employer can deduct union dues from an Employee's wages and pay that amount to the union even if the Deduction reduces the Employee's wages below the FLSA minimum. But if the Deduction (or .check-off.) is unlawful under a law other than the FLSA (e.g., a federal or state labor relations law), it cannot reduce the Employee's wages below the minimum wage or overtime required by the FLSA.
Cash shortages, bad checks
Generally, employers may not deduct amounts from an Employee's wages to make up for cash shortages, bounced checks, or customers who fail to pay their bills if the Deductions would reduce the Employee's wages below the minimum wage or overtime required under the FLSA. There is an exception to this general rule where the Employee has stolen the amount involved, but only if the Employee's guilt has been decided by a court, either after a trial or upon a plea of guilty.
Employer insurance bonds
An employer that bonds an Employee by buying insurance to protect against fraud or negligence attributed to the Employee may not require the Employee to pay for the bond before starting work. The cost of the bond may be spread out and deducted from the Employee's subsequent wages, but only to the extent that the Deductions do not reduce the Employee's wages below the FLSA minimum.