Uniform Wage Garnishment Law Would Streamline Process for Employers
Author: Rena Pirsos, XpertHR Legal Editor
July 20, 2016
The Uniform Law Commission has released a draft Uniform Wage Garnishment Act (UWGA) which, if enacted by state legislatures, would streamline and ease employer administration of creditor garnishments by standardizing many elements that now vary by state law.
Currently, employers receiving a creditor garnishment order against an employee must comply with the garnishment law of the state in which the order was issued. This can be a compliance nightmare for an employer that operates in more than one state, an employer that has employees who live in one state but work in another, or an employer that has an employee who is subject to multiple orders issued in different states.
The UWGA would be a welcome relief for several reasons. First, it provides that the law of an employee's work state would control a creditor garnishment. It would also standardize the following terms, which may differ among state laws:
- An employee would include anyone who is treated as an employee for federal income tax purposes, former employees who are owed earnings, and even individuals who are treated as independent contractors for federal tax purposes.
- Earnings would be defined as compensation owed by an employer to an employee for personal services, including wages, salary, commissions, bonuses, profit-sharing distributions, severance payments, fees, and periodic pension and disability payments.
- Ordered deductions would encompass the creditor garnishment deduction, deductions made under child support orders and tax levies, and deductions ordered under administrative garnishment orders.
The UWGA would also standardize the content of notices employees receive from creditors and employers about the garnishment. Currently, states' content requirements for such notices vary markedly. The standardized notices would include a worksheet for employers to calculate the garnishment deduction.
In addition, the UWGA would require creditors to pay up-front any administrative fees when the garnishment order is served on the employer. Currently, the amount of any administrative fee varies by state and is usually taken by the employer from any wages that remain after withholding from the employee's earnings for the garnishment. In some cases there may not be enough wages left from which the employer can recoup the fee.
The UWGA would also standardize certain procedures employers must follow when honoring a creditor garnishment order:
- Employers would be required to answer creditor garnishment orders within 21 days;
- Garnishment would commence on the first payday that occurs at least 30 days after the employer sends required notices to the employee;
- Employers would be required to remit (to the appropriate creditor or agency) the amount withheld under a garnishment order within five business days (electronic remittances would be permitted); and
- Employers would be required to specify garnishment deductions on employees' paystubs.
The priority for honoring multiple creditor garnishments would differ significantly from current state laws, which overwhelming set the priority as first-in-time-first-in-right. Under the UWGA, employers would honor multiple creditor garnishment orders by sending an equal amount to each creditor. Employers would still honor child support withholding orders and federal tax levies prior to honoring creditor garnishments.
Employers would have a limited amount of time to correct errors made in garnishment administration, however, depending on the error. A variety of penalties would apply to noncompliant employers, but courts would be able to waive penalties.
The ULC is a 125-year-old non-profit organization that drafts uniform laws for consideration by state legislatures. Some examples of other ULC-drafted uniform laws that are helpful to employers include:
- The Uniform Interstate Family Support Act (UIFSA), which standardizes certain elements of the child support withholding process when an employee or dependent child live and work in different states. All states were required to enact UIFSA as part of the 1996 law to overhaul federal welfare programs; and
- The Uniform Unclaimed Property Act, which details the procedures employers must follow when escheating unclaimed wages to a state. Most states have enacted this law.
The ULC will now finalize the UWGA so that representatives can begin working toward states' formal adoption of the uniform law.