Wage Garnishments: Simplifying Compliance Through Automation

by FEI Daily Staff

As the issue of wage garnishments grows, more companies are looking for ways to streamline the process of administering, managing and reporting on wage garnishments to meet complex compliance requirements.

Companies of all sizes must accurately track and report on numerous workforce metrics – an increasingly difficult task given the growing list of government regulations. For wage garnishments in particular, businesses are responsible for delivering consistent and confidential services to their employees while complying with evolving wage garnishment laws across each states in which they operate.

According to a research study by the ADP Research Institute, 7.2 percent of U.S. employees had their wages garnished in 2013,primarily for child support, tax liens and student loans/consumer debt. While national statistics are limited, certain cities are experiencing a significant rise in garnishments, according to the same ADP study. In Phoenix, for example, garnishments rose 121 percent since 2005 while Atlanta saw a 55 percent increase since 2004. In addition, Cleveland saw a 30 percent increase in garnishments just between 2008 and 2009.

As garnishments become a larger issue nationwide, financial executives should work with HR colleagues to re-evaluate their company’s current wage garnishment management processes so they can identify any compliance gaps and opportunities to simplify and streamline the reporting process.

Managing employee garnishments has historically been an expensive, time-intensive process. Ensuring compliance and avoiding costly penalties requires businesses to navigate diverse regulatory requirements by state, jurisdiction and even by individual court order. The differences may stem from the garnishment response requirements and lien priorities to the amount a state allows an employer to withhold from an employee. Throughout this process, businesses take on a high burden of risk as they handle sensitive employee garnishment information that they must report to state agencies.

To simplify compliance, a growing number of companies are adopting automated processes to more efficiently track changes in garnishment laws based on different jurisdictions, send required communication updates to state agencies and monitor confirmations that orders are being processed on time.

Moving to an automated, all-electronic garnishment process can help companies scale back on the amount of internal resources dedicated to tracking materials and submitting garnishment orders. This new approach can also decrease the amount of time typically associated with multiple rounds of review by several entities. Using a secure API-based interface, important garnishment information can quickly be compiled and shared with employers, third-party service providers and state agencies simultaneously. Three key benefits to moving to an automated wage garnishment process include:

  • Decreased staff time and costs associated with managing orders due to a more streamlined process;
  • Reduced risk of non-compliance and hefty fines by removing the potential for human error; and
  • New opportunities to reallocate resources to other business priorities and focus areas.
Leveraging innovative technologies and best practices to accurately and rapidly monitor, process and track wage garnishments as well as keep pace with evolving garnishment regulations is imperative to help employers move from a defensive mode to a more proactive approach so they can focus on their organization’s core business objectives.

A few years ago, the American Payroll Association (APA)recognized the complexity of state garnishment laws for employers and employees alike, and requested a new “model” state garnishment law be created with the hope it would well-received across state lines and, ultimately, reduce complications.

On July 15, 2015, members of the APA’s Government Relations Task Force (GRTF) Child Support and Other Garnishments Subcommittee joined the annual Wage Garnishment Act meeting to re-engage on how to modify state garnishment laws and create a “template” law so local garnishment laws are easier for employers to understand and enact. The new “model” law is still in draft form and available for businesses to view on Uniform Law Commission’s website. It’s a good sign that the process is moving, but also a reminder that financial executives and other business leaders must take ownership of proactively and efficiently managing their company’s garnishment process while the legal process of simplifying garnishment administration for businesses is still underway.

Julie Farraj the Vice President of ADP Garnishment Services.