The requirements and processes applicable to employers handling garnishments are primarily governed by state law—meaning that multi-state employers need to be aware of the federal Consumer Credit Protection Act (CCPA) in addition to the garnishment requirements in all states. Complicating matters further, is the fact that state legislatures frequently tweak garnishment requirements and processes. This two part-series covers the changes to the garnishment laws in Michigan, Georgia, Tennessee, California, South Dakota, and West Virginia. The first installment covered the substantial revisions to Michigan’s and Georgia’s laws. Part two covers Tennessee’s clarified law, in addition to changes to California’s, South Dakota’s, and West Virginia’s laws.
Recent legislation addressed a common issue that arises for Tennessee garnishees. Effective September 1, 2016, a Tennessee garnishment directed to an employer now specifically includes contract payments to independent contractors. This is the result of statutory changes signed by the governor on April 19, 2016. The legislation altered the definitions for “employee” and “employer.” To the definition of “employee,” it adds the phrase “contracted by an employer….” To “employer,” it adds the phrase “retains, or contracts with…. ”
This statutory change repeals a 2015 decision from the Court of Appeals of Tennessee that held that the repeated use of the phrase “employer garnishee” meant to exclude garnishment of payments to nonemployees such as independent contractors. Note: a prior federal bankruptcy court decision held that garnishment of payments to independent contractors qualified for the exemption protections.
California Senate Bill 501 was signed into law on October 11, 2015. The change will become effective on July 1, 2016 and will significantly complicate the calculation of deduction amounts. California will now link the deduction maximum to local minimum wage rates that are in effect when wages subject to garnishment are earned. The amendment requires using the state or local rate applicable to the employee, whichever is higher.
Specifically, as of July 1, 2016, the maximum amount of disposable earnings subject to garnishment shall not exceed the lesser of:
- 25 percent of the employee’s disposable earnings for that week; or
- 50 percent of the amount in excess of 40 times the state minimum wage or local minimum wage in effect for the employee at the time the wage is payable, whichever minimum wage rate is higher.
The effect of this change is to reduce the amount deducted from low to moderate earners. The 25 percent deduction level will remain for higher earners.
South Dakota has joined a limited, but growing, number of states that refer to their own minimum wage rates when determining the amount of the automatic exemption (the amount below which no creditor garnishment can be applied). Specifically, the maximum deduction is now 20 percent of an employee’s wages or the amount of weekly disposable earnings beyond the greater of 40 times the federal minimum wage as of July 24, 2009 ($7.25) or 40 times the state minimum wage (currently $8.55).
Besides housekeeping-type amendments, the legislation also changed the definition of “earnings” to delete a reference to “a pension or retirement program.” This means that any payments made from a pension plan are no longer subject to a South Dakota garnishment, which is a unique limitation.
West Virginia increased the floor below which no garnishment may be implemented. Specifically, effective as of June 9, 2016, earnings below 50 times the federal minimum wage are not subject to garnishment. Previously, West Virginia followed the federal limit—30 times the federal minimum wage.
Garnishment compliance is a two-pronged issue. On one hand, perfect compliance with administration of a garnishment is required or a judgment creditor may seek to hold the employer directly liable for the mishandling. On the other hand, over-withholding can cause an employer to run afoul of the federal Fair Labor Standards Act and state wage payment laws. Notably, over-withholding due to a garnishment would render the deduction as unauthorized and expose the employer to minimum wage and/or overtime violations plus liability for liquidated damages and statutory penalties under state payment of wage laws for failing to pay the full wages owed. This is why keeping abreast of seemingly minor changes to withholding limits like those in the states discussed above is critical to compliance with wage and hour laws.
Part one of this two-part series addressed recent significant changes to Michigan’s and Georgia’s wage garnishment laws.