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[Webinar] Busted! Top 5 Wage Garnishments Myths

2016-03-10 13:00:00

 Description

Wage garnishments are at an all-time high. In many states, employers are becoming increasingly more liable to creditors. But many organizations still overlook wage garnishments and view them as an obscure and complex aspect of business. Because of this, many myths have developed in recent years about how to process wage garnishments, ways to remain compliant when dealing with them and the availability of useful wage garnishment data. Join ADP’s Corri Flores as she provides insight into five of the most common wage garnishments myths and misconceptions that have developed throughout today’s business world. Using the most current wage garnishments data and trends, Corri will examine how electronic processes can benefit businesses and explore the various types of garnishments that affect employers and employees today.

Who Should Participate

This presentation is intended for professionals involved in any way with wage garnishments, payroll, employment tax, general compliance or year-end reporting.

What You Will Learn

  • Five most common myths surrounding wage garnishments and how businesses can overcome each
  • Different types of wage garnishments and how each one can affect both employers and employees
  • How electronic processes can help manage wage garnishments to improve company compliance and mitigate overall risk
  • Most current wage garnishments data and trends available in protecting employee wages and garnishments reporting

Categories

  • Wage garnishments
  • Employment tax
  • Compliance
  • Year-end reporting

 

Pic_CorriFlores 300Corrinne Flores, Garnishment Agency Relations Director, ADP, LLC
Corrinne Flores is the Agency Liaison Director for Garnishments for ADP, LLC. Corrinne manages the relationships between ADP and Garnishment agencies to gather information and cultivate positive relationships. She has been with ADP for over twenty years and has spent the majority of her career within the Agency Relations department. Corrinne obtained her Bachelor’s of Science in Business Management. She has participated on the American Payroll Association’s Government Relations Task Force (GRTF) for Child Support and Garnishment workgroups for the past seven years, and is the current Chair of the GATF Child Support workgroup..

ADP

Five Most Common Myths Surrounding Wage Garnishment

March 15, 2016

2 p.m. ET
Corri  Flores: Greetings. My name is Corri  Flores, and I am the Director of Government Affairs for ADP. Today we’re going to talk about some wage garnishment myths, and, hopefully walk through some of the myths and prove them wrong.

A little about me. As I mentioned, I work for ADP, and I’m the Agency Liaison Director for the wage garnishment project here. I’ve been with ADP for over 19 years and spent the majority of my career working with the agency relations organization. I do participate in the American Payroll Association’s government relations task force, child support, and wage garnishment work group, and I’m currently the Chair of the garnishment child support work group.

Today, I’m excited to share with you and explore the top five most common myths surrounding wage garnishment, and how businesses can overcome each.

The first myth I want us to consider is whether all garnishments are the same. For those that have never processed a garnishment, this sounds pretty logical, right? Once you receive one garnishment, it should be pretty easy to process all the other types. Let’s see if that’s really true.

As we explore wage garnishments, we should start by reviewing a basic wage-withholding definition. When a debt is owed by the employee, a wage-withholding order under various circumstances can be issued to satisfy that debt. This court order, a wage garnishment, requires the employer to withhold a portion of the employee’s wages.

Simple, right? You get in the order, you get in the order, you withhold the wages. This is a definition to get us all on the same page as we move forward and begin to look at the common types of wage garnishments.

This slide shows the various types of wage garnishments employers receive today, and I can tell you the laws and regulations for each are different. I do want to point out that these are not the only types of wage garnishments, but are the most common, and if you’re involved in processing garnishments, you should be pretty familiar with these orders.

We’re going to spend a little time reviewing some specifics for each of these. Starting with creditor garnishments, these debts occur when a person is delinquent on their credit card payment. The creditor may take the debtor to court, and seek a wage-withholding order for the outstanding debt.

In many states, once a garnishment is received, the employer may be required to send back additional information. Requirements vary by state and even by county. This makes the process complex and burdensome for employers.

Bankruptcy orders are another type of garnishment that you may be receiving. Based on research from the American Bankruptcy Institute, 98% of all bankruptcies are personal filings, rather than business filings.

The main reason that someone seeks a bankruptcy– bankruptcy filing protection is due to one of three key areas — losing their job, going through a divorce, or suffering a serious illness. There are two types of personal bankruptcy filings. There’s a Chapter 7 and a Chapter 13.

With a Chapter 7 bankruptcy, the debt is actually forgiven or liquidated. With a Chapter 13 bankruptcy, the individual makes arrangements to repay the debt within a certain period of time. This is often known as a wage earner’s plan.

Moving on to my favorite type of garnishment, child support. These, by far, are the highest volume of orders employers process, and, while some of the laws are very standardized, there are still variances by state.

Many of us know someone either getting child support, or we may be getting child support ourselves. Paying the child support obligation via wage withholding is the standard, and no longer the exception. Along with a child support order, you, as the employer, may also receive medical support notices instructing you to enroll the child in your medical plan, or to withhold a specific dollar amount.

The federal Office of Child Support or OCSE oversees the national child support program, and helps states and tribal child support agencies with their programs.

OCSE works very hard to make the process as efficient for employers as it can be. We’re going to talk a lot about child support later in the presentation.

Student loans are wage garnishments that may be at the federal or state level, and the U.S. Department of Education may contract collection agencies to enforce and collect defaulted federal student loans.

The Federal Debt Collection Improvement Act authorizes federal agencies to garnish up to 15% of disposable earnings to repay on defaulted debts owed. You may be dealing with multiple student loans for your employees, and that’s okay, as long as you do not exceed the maximum withholding limit per employee.

As for tax levy garnishments, they can be at the federal, state, or even local level. While there are varying requirements by state, for state tax levies, there’s also very specific requirements that you, as the employer must adhere to for federal levies.

With an IRS tax levy, many times the taxpayer can actually enter into a voluntary wage agreement with the IRS. This may (inaudible) the deduction amount that was on the original tax levy.

If the employee does enter into a voluntary wage agreement with the IRS, it’s up to the employer’s discretion as to whether or not they will process that agreement via a wage-withholding order. Your employee can still enter that wage agreement, but if you do not honor that, as an employer, which is well within your discretion, but something, then, the employee will need to pay directly to the IRS.

The levy is not voluntary, so keep that in mind, but the wage agreement is voluntary.

I do want to mention, do not stop withholding on an IRS tax levy until an actual release is received from the IRS. Even if your employee is entering into a wage agreement, you need to receive the release for the actual tax levy, if there was a tax levy issued.

Finally, a rather different type of garnishment is called wage assignment. Because the employee actually voluntarily agrees that money by withheld from their wages without a court order. Wage assignments are governed by state law, and since they are voluntary and the employee specifies the amount to withhold, they do not fall under the requirements of the Federal Consumer Credit Protection Act.

As we briefly reviewed the six different types of common wage garnishments, we can safely say garnishments are clearly not all the same. You need to be aware of the type of debt owed, the agency or garnishor collecting it, and the laws applicable to that debt.

You may have to send information back to the agency, to the court, or to the garnishor, or even to your employee, and you need to follow the instructions on the order very closely.

Just knowing which laws, rules, and regulations to apply when processing these garnishments can be challenging for employers, and, if done incorrectly, can expose employers to various liabilities and penalties. I also want to just again mention that you may be receiving many other less common types of wage garnishments beyond what we just reviewed. It is the employer’s responsibility to make sure that all orders are processed correctly whether that type is familiar to you or not.

The second myth I want to explore with you today is whether there is detailed, statistical data on wage garnishments available. Although wage garnishments appear to be rising in certain states, we found that there had been limited national statistics about wage garnishments. Why wage garnishments are rising could be due to a variety of factors — a national divorce rate of 50%, varying volumes of tax levies, of bankruptcy filings, as well as increased creditor debt. As we wanted to see the data across wage garnishment types, that added another additional layer of complexity.

I am definitely a numbers girl, and so, I was pretty excited when the ADP Research Institute decided that there was definitely a need to study garnishment and trends. The ADP Research Institute analyzed anonymous payroll data from 2011 to 2013 for national data, and third quarter 2013 for state-specific information.

This information was the most current data that we had access to at the time, and the patterns we identified have not fluctuated much year over year. The data set was comprised of approximately 13 million employees ages 16 and older. The goal of the study was really to supply an accurate, detailed landscape of wage garnishments by type, and to identify if employees with garnishments have specific characteristics which differ from the labor force in general.

Provided with this information, employers may better understand and react to the challenges of debt recovery.

The garnishment categories examined in the study included state and federal bankruptcy, court-ordered, as well as child support, state and federal tax levies, and a general garnishment category comprised of all remaining miscellaneous judgments, most notably including your creditor garnishments and your student loans.

The research methodology used evaluated employees with garnishments along a variety of dimensions to identify their differing characteristics, including age and gender demographic profiles, region and state geographic profiles, industry size and type, and wage tiers.

I’m going to walk you through some of the study’s findings. We found that 7.2% of U.S. workers in our study, or approximately 936 individuals, had their wages garnished. That’s a pretty significant number, and what that means is for every one of those garnishments, an employer is involved in some way. The employer is completing some type of action, whether it’s sending payments or responding via letters.

Before we go any further, let’s take a look at how these high volumes of garnishments really can impact employers. An internal case study on a mid-market national retailer showed they were experiencing challenges in being able to process the increasing volume of garnishments they were receiving.

On a positive note, their business was growing, so, that’s great. And the number of staff grew, but with that growth, the volume of garnishments they were receiving also grew. As a result, they were continually having to hire more and more attorneys to process the garnishments.

The employer found that implementing a wage garnishment service allowed more of their human resource efforts to focus elsewhere throughout the year. Additionally, they were able to reduce the impact that the increased garnishment volume was having on their operations.

Now we’re going to have our first polling question. Kathy (ph)?

Kathy:           Hi, Corri . It’s up on the screen now, so, if everyone would like to vote. Okay. We’ll give it a couple more seconds. Corri , do you see the results?

Corri  Flores: I do not see the results.

Kathy:           Okay. So, how are you currently processing your wage garnishments? In-house, 67%, third-party, 33%.

Corri  Flores: Great. Thank you so much. So, it looks like the majority of you are processing in-house. Whether you’re processing in-house or with a third party, I’m sure you can definitely relate to the increase in garnishments and how it really does impact your business.

As we begin to review the information from the wage garnishment study, I’m going to highlight a few notable points, but it is a lot of information. As much as I could spend hours analyzing the data, we don’t have that much time.

So, I’m going to highlight specific data, dates, or regions, and this may or may not be where you’re located or even what you’re interested in, as far as statistics. If you would like to have the study, we can provide that to you at a later time.

The research found that there were three primary reasons in our data set that an employee had a wage withholding. They were for child support obligations, tax obligations, and other types of debt.

What we found was that 3.4% of the U.S. employees in our study had a child support obligation, 1.5% of individuals had wage garnishments due to tax debt, and 2.9% had garnishments related to student loans, consumer loans, or other types of debt. Bankruptcy actually had the smallest volume at 0.4%.

This slide shows the garnishment landscape at a national level, based on total volume of garnishments broken down by garnishment type. When the garnishment rates were calculated for each year, it was found that in 2011 those rates were somewhat higher than 2012 and 2013. The overall proportion of employees’ wages that were garnished in 2011 was 7.6%. Rates for all individual types of garnishments was also higher than 2012 and 2013.

Between 2012 and 2013, there was virtually no change in the garnishment landscape. This might be a result of the continued economic recovery we were experiencing.

Here we’ve identified the state level volume of garnishment, and then broken down by type. Listed are some of the states with the most significant data. I thought it was interesting that states in the more Northeast region had the lowest total number of employees having some form of garnishment. It’s important to note here that child support is not the largest category of garnishment in quite a few states.

Looking at California, Colorado, Illinois, New Jersey, New York or Oregon. One possible reason for this could be more schools in these states, hence more student loans, and consequently a higher rate of default.

These numbers show the garnishment volumes at a national level by industry. Starting from the bottom of the chart, the manufacturing industry had 48% of the firms had at least one or more employee with a garnishment. On the other hand, at the top of the chart, approximately only one in five companies in the sectors of professional and business services, education and health services, and financial activities.

This disparity suggests a possible relationship between garnishment and blue and white collar job categories. Manufacturing industries does make up a higher percentage of the workforce in the Midwest, therefore, the Midwest has the highest percentage of total workforce garnishment.

Here’s another way to look at the data from a regional perspective. As I mentioned on the previous slide, the Midwest has the highest percentage of total wage garnishment. The South comes in with the second-highest volume at 7.9%, and the Western section of the country was consistently lower, with the exception of tax levies. The Northeast had the lowest overall garnishment rate.

One of the reasons for this disparity could be variations in industry concentration amongst these regions. The South and Midwest, again, have more manufacturing companies than the Northeast and the West, so we would expect that these regions have a higher overall volume.

This slide, while it’s very busy, it actually details the share of employment by sector and state when comparing manufacturing to the service sector. As we identified in the previous slide for the nation and region, in most cases the share of employment by the manufacturing sector, which is construction and manufacturing combined, has a direct relationship with garnishment. Higher the share, higher the garnishment rate.

Again, as we analyze the data, a pattern clearly appeared that as far as the overall garnishment rates were concerned there was a distinct correlation between employees with blue and white collar job patterns.

Let’s take a look at Wisconsin. Wisconsin actually has the highest rate of garnishment than any other state, but Wisconsin also has the highest manufacturing sector.

(Inaudible) rather interesting way to review the data. This chart details across key states, by garnishment category, when we compare just the manufacturing to the service sector at a state level.

We know that the manufacturing has the highest overall volume that any other sector, but I thought it was noteworthy that with the other category for some of the states, the service sector actually had a higher garnishment rate than the manufacturing sector. Remember, the other category is actually made up of creditor garnishments, student loans, and other miscellaneous types of judgments. In those states, the service sector may be dealing with a large credit card debt, or those coming out of college and beginning to struggle with repaying education debt.

Interesting that Ohio volumes jumped out at me that they have the highest bankruptcy and child support category than any other state.

Oregon had the highest volume in the other category for both manufacturing and service sectors.

And finally, California had the volume in the tax levy category. Many of you may be very familiar with the California franchise tax board levies that you do receive.

This chart actually shows garnishment rates by sate based on the size of the company. When we compared the size of the company in relation to garnishment volumes by state, we found that as the size of the employer increases, obviously the volume of garnishment increases across the state.

Smaller employers may not be receiving a large volume of garnishments, but as they grow it’s the natural increase that they may or may not be prepared for.

When we analyze the landscape at a national level by age, we found that younger and older employers had lower rates of garnishments, compared to the mid-range age group. Rates saw a notable increase beginning at age 25, and a notable decrease in the late 50s.

The highest garnishment rate was 10.5% for those in the 35 to 44 age group, which is typically the age of peak debt load, child rearing, and divorce. Dependent upon the age range of your employees, this may have a direct impact on the volume of garnishments an employer receives.

Here we have categorized the garnishment volume based on age group at the state level. Again, at the lower and higher end of the age group, the garnishment rates are much lower than at the middle age. This is the same pattern we observed for the entire nation.

Wisconsin had the highest volume of wage garnishments within the 25 to 34 age group. This falls into the same pattern of high volumes since Wisconsin also had the highest rate of garnishments and the highest manufacturing concentration than other states.

The highest volume state for the 35 to 44 age group, which, remember, had the highest volume nationally, is Ohio, another Midwest state. Surprisingly, New Jersey and Florida shared some of the lowest volumes in this same category.

National data showed that the garnishment rates by yearly income were highest at the mid-range wage level, and the lowest amongst higher and lower earners. In the middle income rate of $25,000 to $60,000, a higher proportion of individuals carry garnishments compared to employees in other income levels. Child support rates were highest with those earning between $40,000 to right below the $60,000 tier.

To review wage tiers at the state level, at the lower and higher end of the wage bands, the garnishment rates are much lower than at the mid-range wage level. Again, this is also the same pattern as we observed for the entire nation, just broken down by state.

I thought it was pretty interesting how low Florida was in the first two wage tiers, but is not the lowest for the $60,000 to $110,000 wage tier.

And look at Arizona, coming in at the highest in the high wage tier. The variances could be attributable to the workforce population.

This chart volume is based on gender at a national level. For nearly all categories, the wage garnishment rates were similar for men and women and identical for bankruptcies. However, there was a substantial difference in child support garnishment rates between genders nationally. Females had 0.6% rate, while males had a 5.8% rate. This finding may reflect that more women than men have physical custody of children, and men are more likely required to pay child support via wage withholding.

Analyzing the gender data at a state level, we found that states in the manufacturing belt have a higher proportion of males in their labor force, and, consequently, have higher garnishment rates.

For the females, Florida has the lowest overall wage garnishment rate. Interesting, in Arizona, Illinois, New Jersey, and Wisconsin, women actually have a higher bankruptcy rate than men. Again, tax levies is highest in California, and highest with men have a higher rate than women.

And, remember, as I mentioned in a previous slide, California had the highest rate of tax levies than any other state.

With all that data analyzed in many different ways, I think we have completely busted the myth that wage garnishment statistical data is not available.

We completed the study over multiple years, had a large data set, and were able to gain a better understanding of the garnishment landscape, both at a national and state level. Again, I went through this quickly, but the information is available and out there for you to review.

The third myth I want to explore today is how easy is it to stay current with wage garnishment compliance. I know compliance is a key area of focus, but just how involved can it to be to know when a law changes, or why should an employer even care when laws change? Why don’t we explore this together?

Employers recognize that wage garnishment compliance has a direct impact on employees, but processing garnishments is not as easy as withholding wages from your employee’s pay check and sending out a payment. There are many emotions involved with this process.

It’s important to consider that the impact of wage garnishments on employees can extend beyond their paychecks. Employees often find it humiliating because the courts have had to intervene and employers have had to become involved in their private struggles.

Employees in this position may feel that they’re now working for the institutions into which they’re indebted rather than for themselves and their futures. Stress and anxiety are natural outcomes of this process.

But wage garnishments are not just impacting employees. Employers can recognize this employee anxiety in the form of decreased worker productivity and overall lack of motivation. Employers also may be exposed to financial risk when employees’ wages are garnished incorrectly. Processing a garnishment incorrectly may cause the employer to have to pay penalties that they did not anticipate or even budget for.

In addition to the emotional impact or even the financial exposure, employers may also feel the impact of when their employees are dealing with the ramifications of delinquent child support obligations. Being delinquent in child support can negatively impact conditions needed for employment. Let me explain.

The Social Security Act was amended in 1997 by adding a sub-section establishing the denial, revocation, or restriction of U.S. passports if there’s a delinquency of $2,500 or more. Originally, the amount was $5,000, but that threshold was lowered to assist in locating and collecting on more delinquent obligations.

Additionally, state agencies have the authority to deny or revoke driver’s, professional, or hunting licenses for past due child support obligations. For those of you that enjoy hunting, you go to get your hunting license, you may not be eligible to get a hunting license if you have delinquent child support obligations.

But how do these programs impact you as the employer? Well, say you’re an employer and you require that your employees travel internationally, and they can’t get a passport because there’s a delinquency, and they have outstanding child support obligations. Or, if you’re an employer that employs drivers and your employee has had their license revoked and can no longer drive because there’s a delinquent child support obligation, that definitely impacts you.

While these programs are necessary to have child support delinquencies addressed, it can directly impact employers in these ways.

These programs are great, and they continue and will continue to be a large focus for child support because of the positive results, for not only the custodial parent, but for the children. I’ve listed some examples here of states making large, one-time collections on delinquent child support because of passport denial.

Missouri actually collected $419,000 in one single payment for an individual that was trying to go out of the country and could not have their passport renewed. So, the individual actually paid a one-time large payment that went on to the custodial parent. California collected $310,000 for very much the same reason. Someone was wanting to go on their honeymoon. They had an outstanding obligation. They made a one-time single payment in order to get their passport renewed.

The good news is, companies can become proactive to help those being garnished and, potentially, decrease future garnishments. Making a financial wellness expert available to provide counsel, such as budget education and preventative financial wellness training, may help minimize the negative effects of wage garnishment and help employees manage debt.

Tax education can also help employees successfully lower tax debts, in some cases.

Companies may avoid federal and state fines, penalties, and judgments if they become familiar with garnishment law, developing a reliable and timely procedure for garnishment processing, and ensure that policies, in no way, discriminate against an employee facing a wage garnishment.

Whether you’re processing garnishments in house or with a third party, there are key actions you can do to help manage through the challenging legislative environment successfully. Developing tools, resources, and strong working relationships with agencies, courts, and garnishors. Work closely with these agencies so that you can be made aware of major changes when they’re occurring by making sure they know who to contact in your organization, or you know who to contact within their organization.

I would suggest participating on state and federal initiated pilot projects. These programs are critical and great opportunities to positively build relationships, influence initiatives, and provide needed feedback. Make sure you have established a way to monitor legislation that could affect garnishment processing.

Lastly, I would strongly suggest participating with committees, attending conferences regarding wage withholding, and leveraging other contacts you’ve developed whether it’s with the agencies or garnishors or even other employers.

We’re in all in this together, and I think the more that we collaborate and communicate it can be beneficial to all.

Another area that employers most continue to monitor to ensure that they’re in compliance is with fees that the employer can charge for processing garnishment orders and/or payments. Not all garnishment types, states, or garnishors allow employers to charge a fee, but some do, and an employer can actually offset small processing costs with these fees.

There are also agency processing fees that can actually change the total amount owed from the original order you received. These variances can be quite challenging trying to stay in compliance and process according to the laws and regulations.

You may have to make decisions like who pays the fee, the agency or the employee. Is it a per payment fee, or a one-time upfront processing fee, and how the fee impacts the overall calculation.

Compliance is critical in trying to mitigate impacts on employers as they process wage garnishments. Here’s an Illinois case study that I like to share that exemplifies how staying in compliance is so important.

In Illinois a penalty can be assessed to the employer for failing to withhold for a child support order. The penalty is currently $100 for each day that the amount designated in the order is not paid, plus the amount past due. In this case study, the non-custodial parent, a chiropractor worked with one insurance company. That insurance company received a withholding order, but felt that they did not have to withhold wages because the chiropractor was not an employee of theirs.

They considered that the chiropractor was more like an independent contractor, therefore, they were not the employer. They were, however, paying the contractor for services performed. This went on for years and no deductions were paid to the custodial parent.

In short, the court found that the insurance company is considered a payor, as defined in the state’s withholding law, and is subject to the laws and penalties. The estimated penalty was $5 million. Needless to say, it can be very costly if an employer fails to withhold in Illinois. Can you imagine going into your boss and saying, you need to pay a penalty of $5 million because you failed to properly implement a child support withholding order? I think it’d be a tough conversation for me.

I think we’ve totally proved that it’s far from easy to stay current with wage garnishment compliance. It is possible to do, but you must be aware and stay current on changes and work with agencies and garnishors to minimize impact.

When processing, employers need to take into account the type of lien, the regulations and varying agencies or garnishors involved. Otherwise, you may have to pay penalties and fees that you’re not expecting.

Now, polling question number two. Kathy?

Kathy:           Yes, Corri . It’s up on the screen now. So, if the audience would like to vote. How prepared are you with garnishments compliance? Fully prepared, somewhat prepared, and not prepared?

I’ll keep it up on the screen for a few more seconds. Results — 51% fully prepared, 47% somewhat prepared, and 2% not prepared.

Corri  Flores: Great. Thank you. Well, even for the 2% that are not prepared, you’re not alone. There is a mixture between the fully prepared and somewhat prepared, but, hopefully, we can provide some best practices to help you stay in compliance.

As we consider myth number four, I want to take a look at whether there has been any recent wage garnishment legislation. You’re processing garnishments. You’re working to stay in compliance, but, as an employer, how do you know if the wage garnishment legislation has ever changed?

Let’s review some legislation and see where we’re at. Maybe you’re already aware of some of the changes, and maybe you’re not. The Bankruptcy Abuse Prevention and Consumer Protection Act became effective back in October 2005, and while I recognize that this reform was passed over 10 years ago, the changes as a result of this reform significantly changed the volume of bankruptcy orders employers received, and significantly impacted employers and employees, and I think it warrants taking a look at.

While the reform included many changes, there were three major changes that impacted filers and employers. They were strict requirement and audit procedures, increased filing fees, and extended the payment plan to five years.

The reform impacted employers because those filers that previously would have filed Chapter 7, or liquidation of debt, must now file a Chapter 13 repayment plan. This meant that after the reform, there was a higher volume of repayment plans than employers previously received, and now employers were dealing with an extended timeframe from the three-year plan to a five-year plan, so longer processing efforts than we previously experienced.

The good news is that the American Bankruptcy Institute reported that bankruptcy filings are down year over year for the last five years. The chart with the volumes, year over year, and after 2010, there was a steady decline from previous year volumes. The American Bankruptcy Institute reported that 819,000 bankruptcies were filed in 2015, down 10% from 2014 total filings, and approximately down 2.8% from the previous year on Chapter 13 filings. Those are the ones that would involve the employers in the repayment process.

The volume decrease may have a direct reflection on the economy picking up, and more people being back in the workforce. The rate of decline may be leveling off slightly, but it’s still moving in the right direction.

A big area of focus in the creditor garnishment arena is the need for standardization. Currently, the American Payroll Association, or APA, is pursuing the need for standardization in processing creditor garnishments by working with the Uniform Law Commission or the ULC.

Today, we know that creditor-type garnishment processing is the one area that has no uniformity, and laws really need to be reviewed and updated to accommodate improvements in efficiency.

Some of the laws for the states in regards to creditor garnishment collection, have been on the books for years with no update. Changes being proposed include standardization of timeframe, form, the acceptance of electronic signatures on responses, and the maximum penalty limit.

Also being considered is allowing employers to send responses directly to the creditor without the need for a court filing.

The UTC researches, drafts, and promotes enactment of uniform state laws in areas where such laws are desirable and practical. The ULC provides states with non-partisan, well-conceived, and well-drafted legislation that brings clarity and stability to critical areas of state statutory law.

Once the ULC agrees to do a study, there’s generally a two-year minimum to review the garnishment process and make standardization recommendations, but that timeframe can be extended.

Once the final act is proposed, it can be adopted with a majority of UL state representatives voting in favor of the act’s adoption. Then it’s the responsibility of those ULC Commissioners to take the act back to their respective states and begin to look at it from a legislative perspective and how it can be implemented within their individual state.

There currently have been four in-person meetings and those in-person meetings have included not only the ULC commissioners, but advisors representing the employer community, the employee committee, as well as creditors, attorneys, and collectors.

If the act is approved, it will be the most significant changes within the creditor garnishment arena the employer community has ever experienced. Many states have to actually pass legislation in order to enact the changes. So, while it won’t happen overnight, we may begin to see changes spread across states, as well as across years. It’s definitely a move in the right direction.

Let’s take a look at garnishment laws. As far as the creditor garnishment trends, and how it could affect how we’re processing, to date five states this year have already proposed legislation to change the withholding limits and calculations for garnishment. This will definitely change the orders that are being sent to employers, and you would need to be aware of those changes to ensure that you’re in compliance.

Both California and South Dakota successfully passed legislation changing their creditor garnishment calculation limits. It can be challenging for employers to be aware of these types of changes and make sure that their systems are updated accordingly.

If these bills do pass, software and payment systems will need to be updated to reflect the changes. Even if the bills in the other states don’t pass, it’s an indication that state and industry advocates are trying to make changes and improvements.

These types of limits, however, are in opposition of the standardization that we’re asking for in the Uniform Law Commission model act.

Looking at what’s going on in the world of child support, an income withholding order is a court order used in connection with child support proceedings that requires the parent making child support payments to submit a portion of their income, and federal law requires that the standardized income withholding order form is reviewed every three years for any needed changes.

The last significant changes where in 2011. These allowed employers to return the order if it does not direct the payments to be sent to the state enforcement unit, or if it was not issued on the approved IWO form, as required by federal law.

In both cases, the employer should reject the order and return it to the sender, asking for the changes, and for the sender to return that to the employer, if needed.

In 2014, a new order form was finalized and published to all states with no significant or major changes. The next review will take place in 2017 and OCSE will open up a specific timeframe for feedback, tentatively around the July 2016 timeframe. Any changes that employers, states, or anyone involved in this process would propose to the standardized order would occur during this time review.

I think this chart is so powerful and such a positive reflection on all the hard work employers make in ensuring child support is collected across the nation. Employers are, by far, the biggest contributors in making sure that child support is withheld across the United States. In fiscal year 2014 75% of the total $33 billion of child support collected was from employers via wage withholding.

The chart shows the other programs that assist in child support collection, but the child support agencies clearly recognize the contribution that employers make. Additionally, the new hire reporting that employers complete also helps agencies locate child support obligors. 59 million newly hired employees were reported to new hire agencies in fiscal year 2014. That’s an increase by 4 million over the previous year. Without employers complying with these programs, they would definitely not be a success.

Bonus and lump-sum payments are considered income, and can also be garnished to collect delinquent child support. Lump-sum payments are critical to assisting that delinquent child support obligations are being repaid.

The definition and reporting timeframe of “lump sum” varies by state, as well as the holding of the actual payroll from the date of reporting to the child support agency. That can also vary.

It is the employer’s responsibility to make sure that they are handling the lump sum in regards to child support according to the state law. I’ve listed some of the types of income one-time payouts that can be considered lump sum payments, but, again, I would encourage you to review your state requirements.

Lump sum can be severance, leave payouts, insurance settlements, retirement, commissions, stock options, lottery winnings or awards, and payments resulting from verdicts, just to name a few.

Many states have actually passed very specific laws and requirements that employers must report to the state child support agency when they are going to pay a one-time lump-sum payment to employees with child support obligations.

As I mentioned, if the employee is in arrears or delinquent, the agency will issue a one-time wage withholding order for that lump sum payroll.

This map shows the 17 states that currently have very specific laws regarding the reporting of lump sums.

Ohio has the most stringent requirement to report the lump sum payroll 45 days prior to the employer’s payout date, and then the employer must hold the lump-sum payroll for 30 additional days after the date they report the lump sum to the state agency. That’s 75 days total.

Other states may not require reporting of lump sums, but consider lump sum payroll as normal wages that should be withheld or the employer should report as a best practice. As this process allows for collection of funds previously not garnished, we may see an increase in states mandating lump sum reporting.

The lump sum reporting portal, which is on OCSE’s website, provides a central location for employers to report employees who are eligible to receive upcoming lump sum payouts. The information provided by employers is compared to OCSE’s national debtor file that contains individuals who owe past due child support. If there are any matches, the state contacts the employer to inform them of any money that should be withheld from the lump sum payment. The state will either advise the employer in the employers established preferred contact method, or issue a one-time wage deduction.

This map shows all the states that are currently using the lump sum portal. Lump sum processing can be challenging because, as mentioned, the requirements vary by state. The Federal Office of Child Support has a great website that can assist if you have questions about lump sum reporting or how to use the lump sum portal.

Also, there’s actually a state matrix on their portal that shows what each state considers to be lump sum eligible, as well as contact information that may be of help to you.

Since lump sum reporting allows collection of outstanding funds in a one-time process, I believe that this area will continue to be an area of focus by states, and OCSE in the coming year.

There have been legislative changes to the bankruptcy process, creditor garnishments, and within the child support area. All of these changes impact all parties involved in the garnishment process, and it’s critical to ensure that you’re aware and monitoring as changes occur.

I encourage you to continue to monitor and stay aware of upcoming changes. With what the ULC is proposing, we may see quite a bit of movement in the creditor garnishment arena. If you do not have a good process in place to monitor changes, now is a great time to start.

If you’re involved with processing garnishments, you may be getting a lot of mail in, but who wants to deal with all that paper. Just in my personal life, I, like many of you, probably want to do everything that I possibly can electronically, from paying bills to receiving correspondence, to receiving notifications.

So, when processing wage garnishments, why not have similar efficiencies. Let’s pick apart myth number five and determine if paper processing is the only option employers have.

Electronic funds transfer, or EFT, for garnishment payments helps to increase efficiencies, streamline processes, and even reduce cost. All child support state agencies have the ability to accept child support payments via EFT, and some have even mandated employers to send payments electronically.

EFT allows for greater security of personal identifiable information such as Social Security Numbers, but other agencies and garnishors are looking at EFT as an option to collect their payments, as well.

Some tax levy agencies, trustees, and student loan agencies are also implementing electronic payment capabilities. Many state Department of Revenue agencies already receive tax withholdings electronically, so why not accept tax levy payments the same way.

Electronic improvements are being implemented across the country and with various processes. This chart shows the state tax levy agencies that are offering or in the process of implementing third-party payments as an option for paying levies. Colorado, Massachusetts, Minnesota, and Wisconsin already have the capability available. Alabama and New Mexico are very close to implementing, and are currently in development.

Regarding electronic creditor garnishments, Minnesota passed legislation requiring garnishment responses to be electronically filed with the court. They want to eliminate the paper, as well.

If you’re sending in paper responses, you may receive them back advising that those must be filed electronically on their website.

And Wayne County Court in Michigan is also piloting the option of electronic responses.

Growing in popularity and one of my favorites is the electronic income withholding order. This allows for states to electronically send IWOs that would have normally been on paper and for employers to, in turn, electronically accept or reject them. There are three options available, system to system, which does require some development, or, really, the no development options, which are receiving the orders via PDF or an electronic spreadsheet.

The Federal Identification, or FEIN, is a key identifier for employers to receive orders via the EIWO process. Once the employer FEIN numbers are passed through the portal to the state child support agencies, it takes about 30 days to begin to receive the EIWOs. However, we’ve actually experienced a much faster turnaround on adding or removing FEINs.

Something to make note of, the president signed House Bill Number 4980, Preventing Sex Trafficking and Strengthening Families Act, which included a mandate that states must implement the EIWO option for employers by October the 1st, 2015. Once that option was available, states may pass legislation to mandate employers to also use the EIWO process, based on specific thresholds, like they did with the electronics funds transfer.

All states met the mandate to implement the EIWO option, with the exception of South Carolina. Now, it took a long– a little longer than the October 1st deadline, but as of today, all states are up and running.

We currently do not have the exact date on when South Carolina will be up, but once they’re up, it will be a great new process for employers in their state.

As you can see, millions of orders have been processed using the IWO. At the end of 2015, the EIWO portal processed close to 5 million orders, and, as I mentioned, there’s a variety of options for employers to explore, all electronic, and with the intent to eliminate paper.

If you’re interested, you may want to explore what capability works best for you.

Electronic processing is the wave of the future due to the efficiencies it creates, whether it’s the electronic orders or payments or responses, this is the trend we will need to embrace.

The paper processing as being the only option is the final of the myths we proved to be false today. There are a variety of options for employers to explore, all electronic, all with the intent to eliminate paper and improve the overall process.

So, now we have polling question number three. How are you currently processing wage garnishment orders?

Kathy:           It’s on the screen now. Votes are coming in. A few more seconds. 65% paper and 35% electronically.

Corri  Flores: So, it looks like many of you are processing garnishments via paper. There are other options available out there, so, I strongly encourage you to take a look.

Today we’ve reviewed the five most common myths surrounding wage garnishments, and how businesses can overcome each.

We’ve explored the different types of wage garnishments, and how employers can be impacted, as well as your employees. We’ve walked through some statistical data and, finally, we discussed how electronic processes can help increase efficiencies when processing garnishments.

I hope that we helped to dispel some myths today, as well as provided some insight as to the key role that you, as an employer play in this process. You are making a difference in wage– in the wage garnishment world, and without the assistance of employers, these processes would not be a success.

So, thank you for all you do as a key contributor. Kathy?

Kathy:           Thank you. I just have a quick poll up on the screen right now, if anybody would like to complete that, and ADP will be in contact with you.

Thank you, Corri , for presenting this very informative webcast today. To the audience, the archived webcast and slides will be available on the HR.com site within 24 hours. You will receive an email from HR.com with the certification credit information within one to two business days.

ADP and HR.com do appreciate your feedback. So, please take a moment at the very end of the webcast to complete the evaluation survey, which will appear on your screen.

Once again, thank you, Corri , and to the audience, thank you for joining us today, and enjoy the rest of your day.

 

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