Mission to Grow: A Small Business Guide to Cash, Compliance, and the War for Talent

In this episode, we dive into the complexities surrounding garnishments in the workplace, including the differences between wage garnishments and wage assignments, how employers should handle multiple garnishments and the legal implications of terminating an employee due to garnishment. Our guest Brian Shenker shares expert advice on how to navigate these situations while ensuring compliance with federal and state laws.

Takeaways:
  • Employers must follow the garnishment order carefully to avoid legal consequences, including paying off an employee's judgment if done incorrectly.
  • Federal and state laws: Employers need to be aware of both federal guidelines and state-specific laws, which can vary.
  • Garnishment calculation:
    • Maximum garnishment: The CCPA caps garnishments at the lesser of 25% of disposable income or the amount by which weekly disposable income exceeds 30 times the federal minimum wage.
    • Disposable income: Defined as earnings after legally required deductions (like taxes, Social Security), not after voluntary deductions like health insurance or retirement contributions.
    • Garnishments are not allowed for employees with disposable earnings of $217 or less per week.
    • For earnings above that threshold, only a portion (25%) of the disposable income is subject to garnishment.
  • Commissions and bonuses: These also fall under the garnishment rules. Commission-based employees are subject to garnishment just like salaried workers, but their earnings can vary, making the calculation more complex.
  • Fringe benefits: Generally, fringe benefits like free daycare are not considered part of the garnishable income.
  • Independent contractors: The CCPA typically applies to employees, but some states extend garnishment protections to independent contractors as well. Employers should not ignore garnishment orders for independent contractors, even if state laws vary on this issue.
Quote of the Show:
  • “What the CCPA wants to do is make sure that not too much is being taken out from a debtor's paycheck each week, because that then just results in more financial issues and more strains.” - Brian Shenker
Links:
Ways to Tune In:

Creators & Guests

Host
Mike Vannoy
Mike is a digital-first marketing executive with 25 years dedicated to helping HR companies thrive. As a board member of an AI software company and Chief Marketing Officer at Asure, he's been at the forefront of AI, HR compliance trends, and the changing demographics that shape today's marketplace. Under his leadership at Sales Engine Media, the company predominantly focused on the payroll, HR, and benefits industries, earning multiple spots on the Inc5000 list. Actively involved in multiple small businesses, Mike is a lifelong entrepreneur adept at navigating the changing workforce dynamics. He has held multiple executive roles at industry-leading HR firms, showcasing his expertise and leadership in the sector.
Guest
Brian Shenker

What is Mission to Grow: A Small Business Guide to Cash, Compliance, and the War for Talent?

Welcome to Mission to Grow, the podcast tailored for small business owners seeking practical insights, compliance-oriented content, and expert advice to navigate the complexities of HR and beyond. Hosted by Mike Vannoy, a seasoned business professional with a vision for rebranding and leveling up. Join us every Thursday as we delve into the world of compliance, productivity, and management strategies to empower owners and managers of midsize companies.

MTG - EP 124 - Brian Shenker
===

Brian: [00:00:00] what the CCPA wants to do is make sure that not too much is being taken out from a debtor's paycheck each week, because that then just results in more financial issues and more strains. So what it says is that. The maximum part of disposable earnings, we'll get to what that is, of any individual for any work week, which is subject to garnishment may not exceed the lesser of 25 percent of disposable, earnings for that week, or this is a little complicated, we'll walk through it.

The amount by which disposable earnings for that week. exceed 30 times the minimum wage.

Intro: Welcome to Mission to Grow, the small business guide to cash, compliance, and the war for talent. I'm your host, Mike Vannoy. Each week, we'll bring you experts in accounting, finance, human resources, benefits, employment law, and more. You'll [00:01:00] learn ways to access capital through creative financing and tax strategies, tactical information you need to stay compliant with ever changing employment laws, and people strategies you need to win the war for talent.

Mission to Grow is sponsored by Asure helps more than 100, 000 businesses get access to capital. Stay compliant and develop the talent they need to grow. Enjoy the show.

Mike: What every small business owner needs to know about garnishments. This is an area where I think especially small business owners that don't have maybe, uh, an HR department, uh, that is SHRM certified. They know all the rules of what you can and can't do here. Uh, that, that small business owners, I think feel.

Put into an uncomfortable place. It's pretty common that a smaller, uh, uh, firm you're, you're, you're trying to grow, but you've got personal relationships with your employees. And there might not be many layers of management between you and those frontline employees. And so all of a sudden you get a notice for a garnishment.

It's like, [00:02:00] what do I do? You know, I can't not follow the law. I also know this person. I know their personal situation. Maybe I even know the reason why they got the garnishment and I know damn well, it's not their fault. It's that dirty rotten scoundrel who's done something to them. What do I do? Because they feel trapped in the middle.

So really important topic that we need to unpack. So the small business owners understand what they can do, what they can't do. Most importantly, what do they need to do to stay compliant? Got a great guest. If you're a regular watcher of the show, you know, Brian Shenker from Jackson Lewis, an attorney specializing in HR law.

Welcome back to the show, Brian.

Brian: Thanks for having me again, Mike.

Mike: So garnishments. I think people generally know what it is. Maybe let's start out with, uh, you know, what is a garnishment from a legal perspective, you know, who's the governing body? What do we need to know just to start this conversation?

Brian: Yeah. Perfect starting point. Right. So wage garnishment is really a court order or [00:03:00] some type of, other, you know, judicial order that requires an employer to withhold money from one of their employees paychecks. for money that employee owes to some other creditor, right? So often, as you suggested, these monies are due for something like child support or student loan payments or unpaid taxes.

there can be numerous reasons, but through the wage garnishment order that is served on the employer, the employer then becomes responsible for deducting a certain amount of wages and then transmitting them to the creditor. And so, you know, there are different types of these, as I said, for different reasons, like child support, which may be, you know, treated differently.

Um, but the key here is that these garnishments are coming out of state procedures, right? You know, they're, you know, There aren't going to be federal garnishments. So, you know, these are going to come from a local court or [00:04:00] a state court, and there's going to be, you know, directions from on the garnishment itself or from the state on how to treat it.

But all employers need to deal with something called the Consumer Credit Protection Act, which is the federal, uh, statute that governs, uh, garnishments, um, in addition to whatever, uh, you know, the state. Limitations there might

Mike: So, so interesting little paradox there. So it's garnishments come from states and local municipalities, right? Local judge, uh, county judge, state judge, uh, issues in order. That could be a child support order, could be, uh, we'll unpack the different types, but you know, could be lost a lawsuit or fine, or it could be a bunch of different things. So it's not a federal, the federal government doesn't issue garnishments or demand garnishments, but the federal government does govern [00:05:00] this with the CCPA, the Consumer Credit Protection Act. That's interesting. How, how is it that a federal agency governs something that's driven by states? That's interesting.

Brian: Yeah. So great question. And that's a, so I'll explain how this CCPA came to be because, uh, the purpose of the ACT was essentially to mitigate the sometimes very harsh effects of state garnishment laws. Um, so you know what Congress found, and this was back in the 1960s, uh, when you know the law, the CCPA became effective.

Uh, at the very end of the 1960s, but what Congress found was that states that had, uh, the highest rates of personal bankruptcies, uh, were also had, you know, very liberal in how they permitted wage garnishments. So Congress saw a connection between that and what they wanted to do by the CCPA was [00:06:00] really limit how much could be taken out of an employee's wages for garnishment.

So that they could still survive on some minimal amount of income. So what Congress really did was, right, they exempted certain amounts of weekly disposable income to ensure that employees retain, you know, the weekly minimum living allowance. Um, and they also provided that under the federal law, an employee can't be discharged, can't be terminated for having a single wage garnishment, right?

Because As you, as you mentioned, Mike, you know, being served with a wage garnishment, especially for a small or mid sized business, often something they've never dealt with before, something they may not want to deal with, but under the law, you may have to. So there's often a, uh, um, an idea from employers, well, let me separate from this employee.

I can avoid dealing with the administrative burden of this. The [00:07:00] CCPA says, no, you can't do that. Like you said, there's also the opposite response from employers saying, well, this is, you know, my loyal employee for, you know, one or two decades, I'm being told to take money away from them. I don't think that's appropriate.

I want to pay them all their money, but you're bound by a wage garnishment. And as we'll discuss there, there could be consequences for ignoring it.

Mike: Yeah, and we'll unpack that. So that's helpful. So let's maybe just talk about, make sure everybody's grounded on what is a garnishment. What makes a garnishment different than another type of, say, payroll deduction? What's compulsory about this for the employer? Just maybe, maybe give us a tight definition.

And

Brian: the meaning of garnishment is very important in, in this context, because If something, if an order, uh, qualifies as a garnishment, then it is [00:08:00] subject to the protections we'll discuss, which are limitations of how much money can be taken out of the paycheck. But if it's not a garnishment, then it's not subject to those limit limitations and more could be taken out.

So it's very important, right? Whether it's a garnishment. So the CCPA, you know, defines it pretty broadly and it's really. Yeah, any seizure flowing from judicial action, right? So most of these are going to be court orders But it could also sometimes be You know something from for instance, you know a government agency Right, like, you know You know taxes things like that but interestingly enough the CCPA's wage protections don't apply to bankruptcy court orders and or to state or federal actions to collect taxes.

They're allowed to go after, more money. However, in practice, the IRS will [00:09:00] really limit itself to the amounts that this federal law, the CCPA allows, even though they're not otherwise restricted. Um, but, uh, yeah, like I said, you know, um, really if we're talking about statistically, you know, what companies are more likely to have wage garnishments.

So just a matter of fact, it's going to be typically middle aged adults, right? We're talking, you know, that 35 to 44 age range. Why is that? That's because that's the time in someone's life when, one, they might be most likely to go through a divorce, which can often lead to child support, uh, orders. But it's also a time of life when people have, you know, the most likelihood of, you know, filing for bankruptcy or dealing with a lot of other debt.

So that's, that's the age range that we see most of these um, cases. We see it mostly, uh, more so in men than women, uh, [00:10:00] you know, though, you know, that's, uh, somewhat a result of child support orders, but, uh, again, some of this is older data, so that may be changing, um, and then industries with the most garnishments that, that we typically see, you know, manufacturing, transportation and utilities, construction, construction.

Thank you. Um, so again, you know,

Mike: really that's just, that's just math. If there's no judgment, it's just, if, if the majority of garnishments are against men who are paying child support, it would make sense that. Industries that are more male dominated employment would have a higher rate.

Brian: And so some, some of our listeners might already be experiencing this, you know, based on, uh, you know, their, you know, the makeup of their workforce. Um, but that's not to say that, you know, that, you know, this isn't to say women are not affected by wage garnishments. They absolutely are, as are, you know, [00:11:00] individuals younger than 35 and older than 44.

Um, you know, and Mike, as you've suggested, right, these often relate to. life experience, things that the employer will know about, right? So it does sometimes put an employer in an awkward situation because, you know, the, the employee, the employee may be contesting something and they might think it's wrong, this judgment and the employer might know about this and be on their side, but then they get this garnishment and it's not up to

Mike: Let's spend some time on that. Cause we're going to talk about the CCPAs, uh, cap on how much you can take and whatnot. But I just know firsthand talking to business owners, um, this is a real thing. It's like, okay, I, this employee, I just got a notice for a garnishment. I, everybody in the building already knows this person's personal story.

And. Uh, we all might agree that they're getting screwed here. This is not fair. They're, they're living paycheck to paycheck. [00:12:00] I can't possibly take more from them because I know them. I know the other person who's the, uh, offender here. I mean, there's lots of personal knowledge that happens to these things in a, a desire for an owner to arbitrate right versus wrong and take care of their own.

Um, I mean, I think the law is pretty, I think you're going to give us a very black and white answer. What must owners do when they get these notices for garnishments?

Brian: Exactly. So, yeah, so let's go through that and you're right. Let's put off the specifics on the amounts and other details, but What do you do, right? When, when you get a garnishment. So here's the process, right? A creditor, right? Could be, you know, a credit card company could be the former spouse. Some creditor obtains a judgment, right?

Which, you know, says they're entitled to some amount of money. The creditor then obtains a garnishment order from that, from a local court. [00:13:00] So then a garnishment order, it's a piece of paper. It then gets served on the employer. So the employer receives this, right? It now has a garnishment order. So first thing you're going to do is have someone either in HR or finance, someone who can understand these types of things, have them review it.

Uh, again, if you even need to, you know, discuss it with a, uh, HR, uh, consultant that Asure you would do that. You want to understand what you're looking at. So by receipt of that and guard, uh, that garnishment, the employer becomes a garnishee. which means the employer must answer that garnishment order and then withhold certain, certain amounts of money, and then turn over those certain amounts of money to whomever the garnishment order directs.

Um, and so that first step, right, you need to answer the order. So before doing, answering the order, some, some states, and it would typically be contained on the [00:14:00] garnishment order will state that there's a notification requirement to the employee. But not all states require notification to the employee that you've just received a garnishment order.

That said, as a best practice, you can imagine it is a good idea to notify the employee before you're going to make that first garnishment, you know, that first deduction of wages in that payroll, because, you know, they're about to see something they might not expect on their pay stub. It's, it's good to let them know it's coming.

And to.

Mike: it's not, it's not a legal requirement or is that state by state, whether you are legally required to notify?

Brian: Right. State by state. It depends on the state, but even without a requirement, it's a best practice to notify the employee.

Mike: No, I'm assuming you're going to also share what would be a best practice. There's a right way in a wrong way, better ways, worse ways to notify that employee. There's some very obvious bad [00:15:00] ones, like in a public setting. Cause these could be very, very embarrassing situations for employees.

Brian: Yes. No. And that's the number one thing, right? This is obviously a sensitive issue that relates to some other issue in their life. So this is something, pull them into a private discussion. This is a closed door meeting. Um, and yeah, you know, unless. The state, uh, the state requires it to be in writing.

I think verbal notification is fine. Um, you know, they might need to know who the, who the creditor is. Uh, but sometimes it's, you know, not only notification so that, you know, they can expect to receive less, uh, net wages on their paycheck that week, but it's also so Maybe there's an issue. Maybe this was a judgment obtained on default that the employee didn't know about.

So it allows the employee to then go and challenge the garnishment if need be. But remember as an employer, even if the employee [00:16:00] says, this is, you know, a fraudulent garnishment, this, uh, you know, whatever they might say, uh, the company, Can't change anything it does based on what the employee is saying.

Only until, you know, the company needs to respond and can take out the wage, deduct the wages, until it receives another order in writing from the court that issued the, uh, the garnishment telling it to do otherwise. So as the employer, you're really stuck in the middle. You can't really get involved in any dispute over the garnishment.

You just follow the garnishment until you're told to do otherwise.

Mike: Real life story. I know a business owner. I was talking to, to, to this woman, this is maybe five, six months ago. She had, she got a, uh, a notice for a garnishment. It was, it was credit related. Um, a creditor coming after, um, uh, she knew what industry is and she was asking, asking my thoughts. The employee said, Oh yeah, you know what, I, [00:17:00] I, I'm embarrassed by it, but I actually just settled that.

You don't have to take that out of my account because it's hard. I mean, I know your guidance is going to be, but I think that, you know, we need to be black and white in our recommendations on this show. So what does the employer do?

Brian: Right. You're absolutely following what the garnishment says and not what the employee says. And that would apply even if the employee's attorney were to call the, uh, you know, the employee says, Hey, I'll have my attorney call you. And the attorney calls and says, Hey, employer, it's all right.

We got this settled. Or, you know, some others you, you can't, you can listen, but you're not going to change what you're doing because

Mike: Yeah.

Brian: Right. You, you know, again, the garnishment will come with the contact information for the appropriate court or agency, right? So, and often it requires a response at the outset, even before the wages are garnished.

Um, but look, if there are, if you have any questions, right, if the employee says that, [00:18:00] Oh, this was settled, or, you know, the attorney calls them, feel free to reach out to the, uh, you know, the garnishing court. Uh, with a question, there's typically someone there that will, uh, you know, uh, will engage with the employer.

Um, but again, you know, that's not necessarily the employer's responsibility to proactively do anything in that regard, right? If the employee is challenging it, they and their attorney need to challenge it through the legal methods. And if they're successful as the employer, you'll receive a notice from some court telling you.

You know, stop, uh, stop, you know, garnishing the wages, uh, and until you get that, you continue garnishing wages until you, you know, garnish the specified amount, you know, or you get that, uh, that notice from the court.

Mike: so we're gonna get into more details, but I mean the basic punchline is this if an employer gets a Garnishment notice from [00:19:00] could be a Secretary of State. It could be a local court some some some Some governing body it gives you a notice You, you have to act. It's a best practice. Maybe some laws require, states require, some don't, but best practice to privately communicate with the employee what this garnishment is.

So it's not a surprise to them if they say, Oh no, it's still, it's settled. Or you can't do that to me because I can't afford such and such. You don't have a choice. You must follow the law. You must follow the garnishment. You must then pay that deduction, the pay from the employee. You don't get to sit on it for, Oh, I'll pay that bill when I want.

You got to pay it when, as ordered in the garnishment. Right.

Brian: Exactly. Exactly. And, and that's the key, right? That, uh, as soon as the company gets it, it's not, Hey, we'll, we'll get to this in a couple payrolls from now. Uh, It would [00:20:00] apply to the very next, uh, payment, the very next payroll. And if the company doesn't put these things in effect and start deducting, you know, the correct amounts, there can be liability, uh, on the part of the employer.

Um, and so, you know, if your company receives something and you're not sure if it's a garnishment or what it really is, because again, Be there, you know, there's no standard across the country for what a garnishment looks like Because it is state by state and there have been attempts to create a uniform way of issuing garnishments and you know But those have not those have not caught on no

Mike: I suspect that not even the same within a given state.

Brian: Exactly, right? Because one local, a county court, uh, you know, downstate versus, you know, a district court, upstate, right? They're all going to be different. And, and so, you know, sometimes you may even need to, [00:21:00] uh, you know, reach out to an HR consultant or an attorney just to understand what it is you're looking at.

So, you know, again, this is an area where it's certainly okay to ask for help. And it's one of those areas where Even if you listen to everything today and it clicks, you may still need to, you know, get, get advice in the future. It might be unclear, uh, if it's a garnishment or, you know, what, what's actually being required of you.

Um,

Mike: Brian, is it, is it, is it safe to say, I mean, my experience in any matters like this, you know, the judge says you must do this, or there's a law, an HR law in the books that says you must do this. Or, uh, IRS says, Hey, here's, here's your tax bill. In any of those cases, ignoring it as a terrible idea, delaying it and not telling them is a terrible idea.

Um, but for the most part, if you're unsure about what to do and, Hey, I don't know if I understand these instructions. Hey, what is this [00:22:00] for? This is the first time I've ever received anything like this. Your letter seems black and white, but is this even real? I just wanted to check. I think you can't go wrong.

I think these bodies are maybe forgiving as a wrong word, but they will work with you as long as you are proactive in your communication and sincere about trying to understand what it is that they're asking you to do. Is that a fair statement?

Brian: yeah, exactly. No, that's very, that's, that's fairly accurate. And, um, look, the creditors may also, you know, reach out to the employer, you know, make sure they, they received it and. But yeah, you know, and it's something where the employer can go wrong on multiple fronts here, right? Ignoring it would be the worst thing.

And then as we'll discuss, you know, taking out the right amounts and not too much and not too little, right? It's there, there can be problems for employer that does either, right? If you, if you deduct more for the garnishment [00:23:00] than required, right, that could result in some issues with the employee, right?

Maybe you've garnished too much. Now there's a minimum wage issue because you, you've, uh, you've, you know, now they're not even earning the minimum wage based on the amount above the garnishment that you took out, right? There could be issues like that, or you take out too little. There have been courts that have held the employer was responsible for the entire judgment against the employee, right?

There's a, in Georgia case, right? Where the employer, uh, responded to the, the garnishment, but then when they applied it, they, they miss up, they gave wrong information when they responded. And then they misapplied how they garnished the wages. The employer was held responsible for the full 10, 000 judgment against the employee.

So now you had the employer paying off the employee's judgment because they did the garnishment wrong. So there are pretty [00:24:00] harsh consequences here, uh, for, for, you know, messing up the amounts with a garnishment or again, ignoring it in its entirety, will, would have, uh, repercussions as well. Um, so this isn't to scare employers because again, it's not incredibly complicated what you're going to do.

Um, but you need to understand it. You need to account for what the federal law says, for what your state law says, and then make sure it's all coming out and going to the right

Mike: So if, if, if somebody was going to drop from this point of the show on, we're going to get more details, but the thing that they know, you get a garnishment, you notify the employee privately, you follow the letter of the law, the, the, the, every letter of the, uh, of the garnishment. If you've got questions, you talk to the agency who sent it to you and clarify, you pay the bills.

It, this is super black and white, no matter how awkward it may be in reality. Now let's jump into some details about the law. So, um, [00:25:00] And tell me if I'm right here, uh, Brian, like I know, I know some courts when they, when they issue the garnishment to the employer, they're really good because they're, they're incorporating the CCPA's rules into the, uh, garnishment order, meaning those, those specifically say, uh, you know, X percent of income up to certain dollars.

And if it's monthly, this is the amount. If it's biweekly, this is the amount of assembly monthly. It's this amount. And if it's a weekly payroll and they really make it easy and black and white that the employer doesn't have to know the CCPA's rules to then properly file the garnishment. But that's probably not always the case.

Is that fair to say?

Brian: Right. That's not always the case. And where an employer could go wrong is if maybe the garnishment outlines the restrictions under the state law, [00:26:00] which are different than those under the CCPA. And then again, it may be that the state law applies, but again, we'd have to, you know, look at those, uh, you know, against each other.

Mike: Got it. Okay. So let's, with that context, let's unpack what the CCPA says about garnishments. What are the limitations of

Brian: Right. So, right. So as we said, what the CCPA wants to do is make sure that not too much is being taken out from a debtor's paycheck each week, because that then just results in more financial issues and more strains. So what it says is that. The maximum part of disposable earnings, we'll get to what that is, of any individual for any work week, which is subject to garnishment may not exceed the lesser of 25 percent of disposable, earnings for that [00:27:00] week, or this is a little complicated, we'll walk through it.

The amount by which disposable earnings for that week. exceed 30 times the minimum wage. So there, there's a bit to unpack there.

Mike: Yeah, yeah, yeah, yeah, yeah. We're gonna have to go, we're gonna have to go slower for me on that one.

Brian: Yep. And so before I get into those, I'm just going to point out a caveat that what I'm about to get into does not apply to, um, you know, spousal or child support orders or, uh, tax debts. Or student loans. So it's other types of garnishments. If it's a child support order, we'll address those differently.

There's going to be more allowed to be taken out. Um, but yeah, so getting to the, these tests, right. So the first one is pretty straightforward. 25 percent of disposable, um, earnings. [00:28:00] Um, so, um, Then that brings up the question, what is disposable income? Right? So that's the part of the employee's earnings that remain after the deductions for any amounts required by law to be withheld.

Right? So that's the earnings after deductions for federal, state, local taxes, social security. Um, right. This is, not after, um, union dues, health insurance, contributions to retirement plans, because those are not required by law, right? So it's only those legally required, uh, deductions. So we look at the wages after that, and then 25 percent of that would be allowed.

Um,

Mike: So up to 25 percent of the disposable income could be allowed for the garnishment.

Brian: correct. Um, and then there's kind of a little trick to this. Uh, so because depending on the amount of disposable income [00:29:00] per week, There's almost a little trick that the, uh, that that can be done here. So let me, I'll go through. So right now the federal minimum wage is 7. 25. So, you know, again, you might want to check, you should always check your state law, right?

Some state laws might be more generous, uh, than the federal law and, and have a, you know, a higher, a different restriction. But with this 7. 25 minimum wage, basically no, no garnishment can be made under federal law If the disposable earnings are 217 or less per week. So that's, that's the first one, right?

Earn 217 or less per week. No, nothing can be garnished. Then we have employees who earn more than 217 per week, but less than 290 per week. In that situation, only the wages above [00:30:00] 217 can be garnished. So I'll give an example, uh, for this one, right? Um, and employees gross, uh, gross earnings in that week are 250, right?

After the deduction, the federal, state, local, uh, deductions, uh, the disposable earnings are now 220, right? So because that's over the 217, money can be garnished, but it's going to be limited to those, uh, 3 over the 217. Um, so in that case,

Mike: And will it be the 25 percent of that remaining 3 or all of it is now eligible?

Brian: No, it's all, that entire 3

Mike: Okay. Okay.

Brian: And then probably where most of us will be at is where an employee's disposable earnings are more than 290 in a week. And in that example, right, this is probably the majority of our workers, but again, depending on, you know, [00:31:00] geography and such, it could be different.

But for these workers who earn 290 or more, it's pretty simple. Up to 25 percent of those, those earnings may be garnished, right? So again, right. An employee's gross earnings are 350. After deductions required by law, they have disposable earnings, let's say of 320. Um, 25% of 320 is $80, so that full, that full 25% and that full $80 can be garnished.

And the other. So if out of the 320 in disposable earnings, 80 can be garnished and two 40 are paid to the employee.

Mike: Got it. Got it.

Brian: Um. And then, so there, there is a complication that arises when employees are paid on something other than a weekly basis. And it creates this complication because the CCPA [00:32:00] only talks about this, this weekly amount, right?

So, you could have a situation where a state law says each month, right? The employee, you know, 33 percent of the employees disposable earnings could be garnished. Um, And, or, or that's it, they, you know, 33%, but that could all be done in one week. And so that, that wouldn't be permitted under the CCPA because that 33 percent could be taken out in that one week, which would be more than 25 percent that is allowable.

Um, so again, you know, there, there are some complications, but really, There's again a little trick the DOL gives us if there's a, you know, bi weekly, semi monthly, or monthly pay. Uh, basically assume each calendar month consists of four and one thirds work [00:33:00] weeks, and then multiply the number of work weeks by, you know, in the, in that irregular pay period by, you know, 30 times the minimum hourly range.

Um, so that, again, you know, It's, you know, this math isn't too complicated. I, you know, at the outset, it might seem a little confusing, but it works pretty well. Um,

Mike: I've seen people get trouble with, uh, commissions. Commissions can be lumpy. So you could have an employee who's 100 percent commissions. That's their, they don't have a salary. They're not paid hourly. They're just 100 percent commission. So that's super inconsistent. Uh, and how to apply. You could have a high, more highly compensated person.

Maybe they have, you know, 000 base salary, and then they earn commissions on top of that, but it's inconsistent. Um, uh, and maybe it's, you know, maybe they're paid biweekly, semi monthly, uh, but commissions come a month and [00:34:00] arrears once a month. And then there's bonus pay. What, how do you, how do you handle all these non standard pay period types?

Brian: now. So I guess number one, right? So the first thing is that the CPA applies to quote unquote personal earning, right? And so as you suggested, you know, these earnings can come in various forms, right? It could be. Just regular wages or salary, but right. It could also be commissions, bonuses, other periodic, you know, uh, types of payments.

Um, and so, yeah, those are also, uh, subject to the CCPA's, uh, you know, restrictions. Um, and so, I mean, when we look at it, you know, if they're being paid on a weekly basis, then again, we're just going through this, the standard CCPA, Um, you know, analysis, but again, if they're paid, uh, commissions, right. So for instance, you know, [00:35:00] in one work, uh, you know, you have a draw that's paid weekly, and then once a month you have a, uh, commission that's paid.

So, right. You would do this separately for the draws. And then that week, when you have the commission, you would do, you know, the same analysis, but including the commission in that, in that week's pay. Um, You know, same thing, you know, vacation pay and sick pay, you know, count as earnings. So if, you know, someone's out, you know, for a week, but they get, you know, vacation pay, that also, right, it's for personal services, right?

It's for your employment. So you're still going to have to, um, garnish, you know, those types of

Mike: You don't even think about that. That makes sense.

Brian: Yeah. Um, and then, you know, there is, uh, you know, Yeah, I don't want to get too much into this because it even, it even doesn't necessarily make sense entirely to me, but, um, Courts have [00:36:00] even held that once a payment is deposited in an employee's, uh, you know, uh, account, that it could still be subject to CCPA, um, which, you know, it means, you know, has lots of repercussions of how you would get that money, but let's not go down that road.

Um, but, but yeah, you know, once, you know, If you have not paid the employee yet, even if the money has been earned, right, then you're going to have to go through this analysis, you know, before that, that pay is issued each time.

Mike: Brent, I assume expense reimbursement, uh, does not fall in because it's not compensation. It's just reimbursement.

Brian: Right. Right. Cause those wouldn't be earnings. Uh, so right. That, that wouldn't be subject to it.

Mike: Yeah. Okay. All right. What about, uh, what about fringe benefits? So, um, it's obvious if I'm paid, if I'm paid 20 an hour and I'm working with 40 hours, that's 80, [00:37:00] 800 gross minus my taxes. This all seems very straightforward, but what if I'm working for, I got a fringe benefit where I get free daycare? And is that part of the calculation?

Cause it's earned, uh, or how does all that work? Yeah.

Brian: you know, fringe benefits. I'm not so sure, you know, the DOL recently issued an opinion letter that went through these various types of earnings. Um, so, you know, I don't believe that those fringes are included, um, in those types of earnings, but, you know, things like, uh, a payment from, you know, pursuant to a pension or retirement program, you know, though, you know, right.

Even though you're retired, that that could still be garnished, right. Um, so, you know, simply because an employee is no longer working for you doesn't mean you can ignore. Uh, the garnishment order. I mean, you might minimally have to respond, but right. If you're [00:38:00] making some type of retirement payments, that could be something that, you know, needs to be addressed.

Um, and I, I feel this is also leading us to the question, uh, eventually of, uh, independent contractors, uh, as well, which is, uh, kind of the, the two word, uh, phrase we haven't mentioned that

Mike: down that path because I mean, that's, that, that's a tipping point for about 30 different podcasts, uh, around classification and whatnot. And, uh, but, uh, yeah, what, what, what is the. What does a small business owner need to know about a W 2 employee versus a 1099 contractor?

Brian: Right. So these laws, the CCPA, this is always going to apply to your employees. And in the giving you the answer, probably no one really wants on independent contractors. is, uh, it depends, right? Uh, the CCPA,

Mike: There's no more perfect [00:39:00] lawyerly answer than it depends. Yeah.

Brian: exactly.

Mike: are exactly alike. It depends. And

Brian: the CCPA doesn't, explicitly state whether the garnishment protections, apply to the earnings of independent contractor. So what we basically have is various states and jurisdictions, uh, saying different things, right? So. Just to give you an example, you know, Tennessee, Kansas, Iowa, courts there have said that this, the, these restrictions, these limitations on how much can be garnished under the CCPA, those apply to independent contractors.

But then, you know, states like Nevada and Vermont have said, no, it doesn't apply. If you, there's a wage garnishment against an independent contractor. There's no limitation to how much can be taken out. so, you know, that is one where I think what [00:40:00] employers should know for an independent contractor is don't ignore it just because you receive a garnishment for an independent contractor.

That doesn't mean it can be ignored. Um, they, the notice itself might, might give you an indication of, you know, that, Whether it applies or not, but absent that, you may have to get some advice, right? You may have to contact. You know, an HR consultant who may know that or, uh, an attorney because it becomes

Mike: my, my non attorney advice is follow the damn garnishment because if, the court already has its eyes set on you and they're, they are attempting to hold you, the employer accountable for contract worker. And so. they're going to, they're going to treat you for non compliance of the order in the same way they're going to treat the, contractor for repayment.

[00:41:00] So if, you start deducting and that contract doesn't, I mean, it maybe adds a layer of weirdness and awkwardness to the conversation because it's a 1099 contract employee versus W 2 employee. But would just say, don't try playing lawyer here. I mean, follow the damn garnishment, right?

Brian: Yeah. And what I will say is that many states, uh, fill in the gap that the CCPA kind of omits with respect to independent contractors. And a good number of them do explicitly state, yes, these restrictions apply to employees and independent contractors. Um, again, it's the same, it's to fulfill the purpose of the law, right?

If the difference between employee and independent contractor shouldn't necessarily dictate whether a huge amount of one's weekly pay or a smaller amount could be garnished, right? So I think a good number of states are acknowledging that. [00:42:00] And applying it to independent contractors.

Mike: I don't want to go too deep down this rabbit hole. Because it could be a big one. You know, there's a, we talk on this show many times, you and I have done episodes, uh, our good friend, Mary and I have done episodes on this topic about employee classification. Um, you don't get to choose. There are, there are laws that dictate and determine, and there are tests that must be applied, whether you're exempt, non exempt employee, whether you can be a contractor or whether you're an employee and people get misclassified as, 1099 contractors all the time when legally they should be classified as employees.

That said, one of the, one of the litmus tests for being a contractor is, uh, the ability. To provide their own tools and, uh, subcontract the work themselves. So how does that work? Cause you start, cause we can get, get our heads easily around a contractor being a human being that's renting their [00:43:00] labor to me in a, in, in, in a contract worker.

Right. But it's all, there's, there's a continuum from there to being an actual business that hires a bunch of employees to perform work on their behalf. Let's just pick a simple case. You hire, uh, you've got an IT person that is an outside contractor to you. They, they manage your computers and your network, your phone system.

They set all that for you. But they have some subs that work for them. What happens when you get the garnishment for the sub of them that you didn't even know existed? Or is that even a thing? Or is it really only the person you're directly contracting

Brian: right. So typically what we'd expect to see would be that it would only, the garnishment is only going to be served on the actual employer or the company that the independent contractors working for, because typically that's who the creditor is going to find out about, right? They're [00:44:00] much more likely to find out about the company that's actually paying this guy, then the company that is paying the company that's paying the employee.

So, you know, I, I can't recall any situations where that I've seen where, you know, like the general contractor received it instead of, you know, the subcontractor. Um, but you know, if that's the case, again, under no circumstances should the company ignore it, right? You know, in that circumstance, your, you should still respond.

And your response may be, we don't pay this person. You know, as far as we know, they are a worker for X company, right? That, that might be the response,

Mike: I was realizing it's kind of a stupid question before exactly what you just described, but it does make me wonder about like this test of from below 217 a week, over 290 a week, up to 25 percent of the remaining disposable earnings. [00:45:00] If I'm a contractor, I might be charging you over market rate because you don't know it, but I'm actually paying subcontractors under me.

So it could look like an inflated. Available earnings to deduct from, from the employer's perspective, but that liability really rests on the contractor themselves, doesn't it?

Brian: right? I think it would. Um, and then look one more complication to throw in there right now, now that we've kind of set the, uh, the table employee, you know, workers can get multiple garnishments. Uh, and that becomes very, that becomes complicated. So the first thing I'll say is that, um, it is likely, I mean, I, I believe over 10 percent of those with a single garnishment actually have multiple garnishments.

Um, so, you know, when there are multiple, um, there's going to be a [00:46:00] priority of which one comes first. And typically it's the support orders, right? Child support orders are almost always getting the first priority. Um, but what you need to be aware of is that this federal CCPA Act does not say anything about priority.

So, employers should look to the state law, uh, to address the priority of multiple garnishments. Um, so again, reaching out to, you know, your local HR consultant or an attorney, right? That's something that's going to be set forth somewhere, but you need to follow it. Uh, so that'll tell you if you have multiple ones, which one comes first.

And it's very important because There may not be enough, uh, you know, subject, let's say the person earns, you know, 500 a week, right? So it's the 25 percent limit we're looking at.

Mike: Yup.

Brian: There might not be enough money being earned to satisfy both garnishments each week. [00:47:00] So, you know, that might mean only one is being garnished or some of one and, you know, all of one and a little of the next, but The employer needs to know which one is coming first.

So that's real important. Just to know that you can't select. It's not as if the first one received in time is always the one you're going to follow, right? There are situations where a more recent child support order might take precedent over a priority over some older garnishment. Then the key is right, that you need to make sure these are garnishments, right?

Like something like a wage assignment is not a garnishment, right? When an employee

Mike: Talk, talk, talk about that. And what's, what's the difference between those two things?

Brian: Sure, sure. So a wage garn, uh, a wage assignment is more of a voluntary procedure where let's say an employee might may owe a debt and so they agree to an assignment [00:48:00] of X amount of wages, each pay period that the employer, you know, deducts. and submits to, you know, a creditor. So that, that, that might be something voluntarily agreed to, uh, between, you know, but then let's say you're doing that.

And then that employee gets a garnishment. The garnishment is the only real garnishment, right? The wage assignment is not considered a garnishment. So

Mike: Fair, fair to say that a wage assignment wouldn't come from a court, a garnishment would. And so, Well, you as the employer, aren't probably legally obligated to participate in this wage assignment. Maybe you want to help your employee. Hey, you know, they're trying to get back on their feet financially. You want to help them repair their credit.

You're going to deduct a certain amount. You'll pay their creditor for them. And so you feel like you're, you know, you're, you're, you're being a good human. You're helping them out, but that's completely [00:49:00] voluntary. Uh, as an employer, you're not legally required to do that.

Brian: Right. Exactly. Um, yeah. And so, you know, look again, when we have these multiple ones and if they are, if you have multiple ones that actually are garnishments, then right, then we're going to have to look to the particular state law to see the priority of those. Um, and so again, it, that becomes a little bit complicated, but once we determine the priority and we know the amounts because we've calculated it, it's really just going one by one, seeing if that has used up all the, uh, amount that can be garnished.

If it does, all right, it ends there. That's all we garnish. If it doesn't, there's still some leftover. Then you can go to the second garnishment, uh, and then you can decide what to do from there. And talking about multiple garnishments, I will make one point that the CCPA [00:50:00] has a limited anti retaliation provision, right?

It's limited in that really it just protects employees from being terminated if there's a single garnishment for, a garnishment for a single debt. So under the CCPA, if someone is subject to two garnishments for two, you know, There are two garnishments, and they're with respect to two different debts, there's no longer protection from termination, but that said, state law may expand those retaliation protections, even when there's more, uh, than one, uh, one garnishment.

Mike: So. I'm the employer, um, I try to run a, uh, I don't know, a highly moral, clean, family like business, and all of a sudden I get a garnishment that, uh, reveals some sinister part of this [00:51:00] employee's path that I, that I don't agree with. I can't fire them. That's, that's, that's really what this means, right? Are there, if I make up a ridiculous edge case, are there edge cases, um, where there could be, you know, maybe I'm a, maybe I'm a faith based business.

Um, literally I'm an employee of a church and there's, you know, I see a garnishment that reveals something that you signed an oath that you wouldn't do. I don't know, I'm making crap up here, but are there any edge cases where It's easy to see how this could be abused where employees could be. You know, I don't know, overly judged for their moral character because they have a blemish in their past.

Brian: Right. But no,

Mike: an employer has any rights here?

Brian: I have not seen those, and you know, one reason for that is, um, We see a limited amount of these discharge [00:52:00] actions being filed because there's a split of authority as to whether there's a private right of action or if the Secretary of Labor of the U. S. Department of Labor has the sole authority to bring these, um, so, you know, there's that in the background, but, uh, you know, what these laws say is that, you know, it's due to the fact of the single wage, uh, garnishment.

So. If the garnishment somehow raised some other issues that became problematic, um, and the company took action against them because of that, right, they could argue it's not due to the fact of the wage garnishment. It's due to some other fact that led to the termination. What I would say is be very careful with that because Um, you know, the CCPA not only makes it a civil, uh, cause, uh, claim for, you know, that, uh, you know, unlawful discharge, there can actually be criminal, uh, [00:53:00] um, it can be a criminal offense to discharge someone due to a garnishment.

So I think that is something, uh, an employer really wants to be careful of, especially because the discharge protections will only be stronger under state laws. Uh, if anything, and so that plus what's in the CCPA, you really got to be careful. If you're going to consider terminating someone because of an issue associated with a garnishment, I would suggest getting, you know, legal guidance on that because you could be going down, uh, you know, uh,

Mike: And you and I, we've talked many times in the show, I mean, this just, it's kind of backs into just your hiring practices and, and of course you want to hire people of good character. That just, that makes perfect sense. But be really careful trying to play the moral police here as the employer. Hire for skills.

Hire for culture. Hire for things that map to actually performance that you can demonstrate, if necessary, to a [00:54:00] judge that, oh, these are the requirements for the job. Um, And you're almost probably never going to be on very solid ground if it's because, oh, they borrowed too much money and didn't repay it.

Or, oh, they, they're a deadbeat dad and didn't pay. I mean, just stay, stay out of the moral business and focus on skills and competencies, what is required to perform the job, make that part of your hiring practice, your performance management process, your handbook process. Um, and you probably, that will. If you're inclined to go there, hopefully you're not, but if you are, that helps you stay out of those waters.

Is that fair?

Brian: yeah, absolutely. And look, what I would say, look, based on the statistics we discussed before, uh, you Garnishments are just going to be a fact of life for our workforces, right? You know, if you're lucky enough to have not had to deal with one, that's great, but you very well may in the [00:55:00] future. And so, uh, I, you know, like you said, this doesn't mean someone's a bad person or they should be fired.

https: otter. ai The employer continues to employ this person so they earn money so they can make their own livelihood and they can satisfy the debt they owe to a creditor, right? So that is really what the goal of these laws is. And yes, it does put some burden on employers, to respond to these garnishments in the correct way.

Um, but you know, I think best practices, you know, you should have a point person, right. Who's going to deal with these, right. That's typically going to be someone in HR or maybe even finance because of, you know, what we're dealing with here. Um, and then look, the first thing, the first step, if you receive a garnishment, respond to it, right.

They often have a response [00:56:00] requirement. You know, before money is, you know, has to be garnished. So respond, you know, inquire with questions. Uh, if there's someone to ask, if not engage, you know, with your own uh, resources, right, a shore or an attorney. Um, and then, you know, make sure you implement these internal practices so that you can, you know, replicate this in, in the future.

And I think, you know, those are key, not ignoring it. Not being loyal to your employee is a real key here that, yes, you're being loyal by still employing them, but you can't be loyal to the extent of ignoring the, the garnishment or trying to get around it. That's only going to have repercussions for the employer.

Mike: As always is the case, you don't get to make HR policies that circumvent the law. Uh, Brian, I think we, I think we, Cover all aspects. I'm sure you can always go into more nuanced [00:57:00] cases, but I think, I think we hit the guts of it and I won't even attempt to recap cause I think you just nailed it perfectly.

Any other final guidance that you would give small business owners here?

Brian: No, I think that's really it. Don't, don't just ignore it if you're not sure what it is. You have the duty to figure out what your obligations are. Uh, and they're not too complicated once you, you, uh, set up some processes and, you know, wrap your head around, you know, what the steps are here.

Mike: Yeah. And, uh, for, for, for people newer to the business world, maybe you've hung out a shingle, you're just starting a business, uh, you've never faced this before, this can be intimidating. It's like. Uh, boy, I feel caught in a rock and a hard place. I probably know too much information. Um, this sounds like some legal thing I gotta follow, but how should I handle this?

Um, if you don't feel comfortable, call, you know, contact an attorney like Brian. Contact Asure. Uh, uh, uh, but, uh, I [00:58:00] would probably encourage people the fastest, cheapest, easiest thing. Contact the person or the agency who issued the garnishment in the first place. They'll probably be pretty helpful. They, they want the money.

And so they're gonna, they're gonna help you comply with the law, uh, and comply with that garnishment and clear up any questions you probably have. That's probably the, the fastest, easiest thing you could possibly do. So we know it's complex and can be intimidating for folks going through this kind of stuff for the first time.

So as you add employees, it's, it's, it's not a matter of if it's a matter of when you're gonna face this, you're gonna have to deal with it. You're gonna have to deal with it in a legal way. So Brian, thanks for unpacking this topic for us.

Brian: Thanks again, as always.

Mike: Yeah. And as everybody is growing their business, uh, thank you for, uh, another week, letting us be part of your mission to grow until next week.

Outro: That's it for this episode of Mission to Grow. Thanks for joining us today. For show notes and more episodes, visit us at [00:59:00] missiontogrow. com. If you found this content valuable, I invite you to share it with a friend and subscribe to the show. If you really want to help, I'd love it if you left a five star review on Apple Podcasts, YouTube, or wherever you listen.

Mission to Grow is sponsored by Asure. Asure helps more than 100, 000 businesses get access to capital, stay compliant, and develop the talent they need To learn more about how Asure can help your business grow, visit AsureSoftware. com. Until next time.