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What Is Wage Assignment?

Definition and example of wage assignment, how wage assignment works, wage assignment vs. wage garnishment.

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A wage assignment is when creditors can take money directly from an employee’s paycheck to repay a debt.

Key Takeaways

• A wage assignment happens when money is taken from your paycheck by a creditor to repay a debt.
• Unlike a wage garnishment, a wage assignment can take place without a court order, and you have the right to cancel it at any time.
• Creditors can only take a portion of your earnings. The laws in your state will dictate how much of your take-home pay your lender can take.

A wage assignment is a voluntary agreement to let a lender take a portion of your paycheck each month to repay a debt. This process allows lenders to take a portion of your wages without taking you to court first.

Borrowers may agree to allow a lender to use wage assignments, for example, when they take out payday loans . The wage assignment can begin without a court order, although the laws about how much they can take from your paycheck vary by state.

For example, in West Virginia, wage assignments are only valid for one year and must be renewed annually. Creditors can only deduct up to 25% of an employee’s take-home pay, and the remaining 75% is exempt, including for an employee’s final paycheck.

If you agree to a wage assignment, that means you voluntarily agree to have money taken out of your paycheck each month to repay a debt.

State laws govern how soon a wage assignment can take place and how much of your paycheck a lender can take. For example, in Illinois, you must be at least 40 days behind on your loan payments before your lender can start a wage assignment. Under Illinois law, your creditor can only take up to 15% of your paycheck. The wage assignment is valid for up to three years after you signed the agreement.

Your creditor typically will send a Notice of Intent to Assign Wages by certified mail to you and your employer. From there, the creditor will send a demand letter to your employer with the total amount that’s in default.

You have the right to stop a wage assignment at any time, and you aren’t required to provide a reason why. If you don’t want the deduction, you can send your employer and creditor a written notice that you want to stop the wage assignment. You will still owe the money, but your lender must use other methods to collect the funds.

Research the laws in your state to see what percentage of your income your lender can take and for how long the agreement is valid.

Wage assignment and wage garnishment are often used interchangeably, but they aren’t the same thing. The main difference between the two is that wage assignments are voluntary while wage garnishments are involuntary. Here are some key differences:

Once you agree to a wage assignment, your lender can automatically take money from your paycheck. No court order is required first, but since the wage assignment is voluntary, you have the right to cancel it at any point.

Wage garnishments are the results of court orders, no matter whether you agree to them or not. If you want to reverse a wage garnishment, you typically have to go through a legal process to reverse the court judgment.

You can also stop many wage garnishments by filing for bankruptcy. And creditors aren’t usually allowed to garnish income from Social Security, disability, child support , or alimony. Ultimately, the laws in your state will dictate how much of your income you’re able to keep under a wage garnishment.

Creditors can’t garnish all of the money in your paycheck. Federal law limits the amount that can be garnished to 25% of the debtor’s disposable income. State laws may further limit how much of your income lenders can seize.

Illinois Legal Aid Online. “ Understanding Wage Assignment .” Accessed Feb. 8, 2022.

West Virginia Division of Labor. “ Wage Assignments / Authorized Payroll Deductions .” Accessed Feb. 8, 2022.

U.S. Department of Labor. “ Fact Sheet #30: The Federal Wage Garnishment Law, Consumer Credit Protection Act's Title III (CCPA) .” Accessed Feb. 8, 2022.

Sacramento County Public Law Library. “ Exemptions from Enforcement of Judgments in California .” Accessed Feb. 8, 2022.

District Court of Maryland. “ Wage Garnishment .” Accessed Feb. 8, 2022.

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What Is a Wage Assignment?

How wage assignment works.

• Why Are Wage Assignments Voluntary?

Wage Garnishment

The bottom line.

• Credit & Debt
• Debt Management

Wage Assignment: What It Means, How It Works

Wage assignment is the act of taking money directly from an employee's paycheck in order to pay back a debt obligation. Such an automatic withholding plan may be used to pay back a variety of debt obligations, including back taxes, defaulted student loan debt, and both child and spousal support payments.

Key Takeaways

• A wage assignment takes funds directly from an employee's paycheck to pay back a debt.
• How wage assignments are regulated varies by state, with some states even allowing for voluntary child support agreements.
• A wage garnishment is an involuntary deduction and requires a court order.

Wage assignments are typically incurred for debts that have gone unpaid for a prolonged period of time. Employees may sometimes opt for a voluntary wage assignment to pay for things like union dues or to contribute to a retirement fund.

A wage assignment is processed as part of an employer's payroll procedure. The employee's paycheck is decreased by the amount of the assignment and noted on their pay stub.

A wage assignment is often a lender's last resort to receive repayment from a borrower who has previously failed to pay a debt obligation.

Wage assignments are a valuable tool for collecting unpaid debts, but unfortunately, they may be associated with abusive lending practices . If you're struggling with your debt, one of the best debt relief companies or credit counseling agencies may be able to help you get back on track before a wage assignment is incurred.

What Makes Wage Assignments Voluntary?

In a voluntary wage assignment, a worker essentially asks their employer to withhold a portion of their paycheck and send it to a creditor to pay off a debt. Loan agreements may sometimes include a voluntary wage assignment clause in their terms should the borrower default on their loan.

Payday lenders often include voluntary wage assignments into their loan agreements to better their chances of being repaid. Laws regarding wage assignments vary by state.

For example, in West Virginia, wage assignments are capped at 25% of a worker's take-home earnings, the employee and the employer must sign the agreement, and agreements must be renewed annually. Under Illinois law, a lender cannot resort to wage assignment until a debt is 40 days in default. The wage assignment cannot continue for more than three years, and the worker can stop the wage assignment at any time.

Involuntary wage deductions, known as wage garnishments , require a court order and are most likely to be employed to collect spousal and child support payments that have been ordered by a court. Wage garnishments may also be used to collect unpaid court fines or student loans that have been defaulted on.

Several states allow individuals to sign up for voluntary child support agreements. In such a case, both parents must agree to a plan. Once that happens, a voluntary wage assignment may begin. If a child support or welfare agency is involved, they would have to approve any plan.

How Long Can I Have a Wage Assignment?

Since wage assignments are voluntary, the length of time that you use one can vary. Some loans include a wage assignment agreement, so you'll have to check the language of your loan to determine your obligation. Each state also has its own regulations regarding wage assignments.

How Much of My Income Can Go to Wage Assignments?

Every state has its own regulations, but typically 15–25% of your disposable income can be designated for wage assignments.

Is Wage Garnishment the Same as Wage Assignment?

While they are similar, wage garnishment and assignment are not the same. Wage garnishment is an involuntary paycheck deduction, typically ordered to repay child support, student loans, tax debt, or bankruptcy. A wage assignment is voluntary and may be used to repay a consumer debt.

Wage assignments may be a useful tool to help you pay down a debt. Wage assignments are voluntary but they may be hidden in the fine print of some loan products, so read everything carefully before signing. Check the regulations in your state to determine if your wage assignment is revocable.

West Virginia Division of Labor. " Wage Payment and Collection (WPC) Act: Payroll Deductions and Wage Assignments ," Page 3.

Illinois General Assembly. " (740 ILCS 170/) Illinois Wage Assignment Act ."

U.S. Department of Labor. " Fact Sheet #30: The Federal Wage Garnishment Law, Consumer Credit Protection Act's Title III (CCPA) ."

Illinois Legal Aid. " Understanding Wage Assignment ."

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Wage Garnishment & Assignment: 4 must knows for employers

By Julie Farraj

Feb. 15, 2017

Proper management of wage garnishment can be especially crucial to growing businesses because as their hiring increases, they may also be inadvertently increasing their garnishment liability. That’s why it’s important for an employer to remember four things can help appropriately and accurately process wage garnishments while remaining compliant.

1. All garnishments are not the same.

Here’s a basic wage withholding definition: When an employee fails to repay a debt, a wage withholding court order can be issued against the employee’s earnings to satisfy that debt. This court order — also called a wage garnishment — requires the employer to withhold a portion of the employee’s wages and forward them to a third party. Wage garnishment orders also can be issued by government agencies such as the IRS, state tax agencies and the U.S. Department of Education.

Simple, right? A business receives an order about one of its employees and refers it to its payroll department to process by withholding the appropriate wages and forwarding it to the proper recipient.

There are six common types of wage garnishment. They are:

Child support garnishment comprises by far the highest volume of orders employers process, and, while some of the laws are very standardized, the law can vary by state.

Creditor garnishments are debts that occur when a person is delinquent on consumer payments (e.g. credit card debt). The creditor may take the debtor to court and seek a wage withholding order for the outstanding debt.

Bankruptcy orders . Based on research from the American Bankruptcy Institute , 97 percent of all bankruptcies are personal filings rather than business filings.

Student loans may be collected by the U.S. Department of Education, which may contract with collection agencies to enforce and collect the defaulted loans.

Tax levy garnishments can be issued at the federal, state or local level. Each state differs in its requirements and those laws may differ from federal levies.

Wage assignment occurs when an employee voluntarily agrees to have money withheld from his or her wages. Wage assignments are governed by state law and do not involve a court order. 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.

It’s important that employers keep in mind the type of debt owed, the party collecting it, and the laws applicable to that debt. Knowing which laws, rules, and regulations apply and keeping current on them when processing wage garnishments can be challenging for employers, and, if done incorrectly, may expose employers to various liabilities and penalties.

In addition, the six types of wage garnishments noted above are the most common wage garnishments; employers may receive other less common types of wage garnishments. It’s the employer’s responsibility to comply with and make sure all orders are processed in a timely manner and correctly whether or not they are familiar.

2. Wage garnishment can affect employee productivity and morale.

Most employers recognize that wage garnishment has a direct impact on employees. However, this impact can extend beyond their paychecks. Processing garnishments is not as straightforward as simply withholding wages from an employee’s paycheck and sending a payment. The process is far from simple and can be complicated by myriad emotions.

Employees often find it humiliating because the courts have intervened and employers have become involved in their private struggles.

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

An affected employee’s anxiety could show itself through decreased productivity or a lack of motivation. Employers can help affected employees and potentially decrease future garnishments by providing financial wellness training and counseling, as well as tax education, to help employees manage debt.

3. Wage garnishment can affect an employer’s finances and business efficiency.

Employees aren’t the only ones affected by wage garnishment. Employers expose themselves to financial and legal risk when they incorrectly garnish an employee’s wages, fail to file in a timely way, file a defective response, fail to follow specific requirements when sending payments, or make other missteps with a garnishment. Mishandling a garnishment can lead to a judgment against the employer for the entire amount of the employee’s debt, a lawsuit from the creditor or the employee, or other costs or penalties that the employer didn’t anticipate or budget for.

In the instance of garnishments for child support, employers could potentially feel the impact of laws designed to restrict travel. For instance, the Social Security Act was amended in 1997 with a sub-section that established the denial, revocation, or restriction of U.S. passports if the non-custodial parent has child support arrears of $2,500 or more. Additionally, some state agencies have the authority to deny or revoke drivers’ and professional licenses for past-due child support obligations .

If your business requires employees to travel internationally or employs drivers, these laws could impact an employee’s ability to do his or her job effectively and, by extension, impact the efficiency of your business.

Another current area of focus that could impact employers is in the creditor garnishment arena. Currently, the American Payroll Association is working with the Uniform Law Commission to establish a standardized processing for creditor garnishments through the Uniform Wage Garnishment Act, which proposes to standardize the wage-garnishment process for employers, employees and creditors. Currently, state laws differ significantly in their requirements regarding wage garnishment, from the beginning to the end of the garnishment, and are often outdated. This means businesses that operate in multiple states must identify and abide by these different legal requirements, which can potentially lead to processing errors, confusion, inefficiency and noncompliance.

Companies can help manage these challenges if they become familiar with garnishment laws and guidance from agencies such as the Federal Office of Child Support Enforcement, develop reliable and timely procedures for garnishment processing and ensure that policies are administered fairly for all employees facing a wage garnishment.

It may be useful to develop tools, resources and strong contacts with agencies, courts and garnishors. Staying close to these agencies may help your business remain aware of major changes to wage garnishment laws.

Consider participating in state and federally initiated pilot projects. These programs are valuable 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.

Other steps an employer can take include participating with committees, attending conferences regarding wage withholding, and leveraging other contacts you’ve developed with the agencies, those imposing wage garnishments, or other employers.

4. Paper processing is the not the only option.

A study by the ADP Research Institute revealed that 7.2 percent of employees had wages garnished in 2013. Keeping pace with the proper and timely processing of wage garnishments is challenging for many businesses.

As wage garnishment volumes and laws intensify, garnishment processors have the option to use electronic funds transfer, or EFT, to save time, increase efficiency, streamline processes and potentially reduce costs.

Currently, virtually every child support state agency has the ability to accept child support payments via EFT, and some have even mandated employers to send payments electronically. Some tax levy agencies, trustees and student loan agencies also are implementing electronic payment capabilities. In addition to business efficiencies, EFT enables greater security of personally identifiable information, such as Social Security numbers.

Minnesota has passed legislation requiring employers to electronically file their response to a state tax garnishment summons with the state tax agency, and Wayne County Court in Michigan is piloting the option of electronic responses.

Electronic income withholding orders are already very popular. These enable states to electronically distribute income withholding orders and employers to electronically accept or reject them.

Clearly, wage garnishment can have a profound effect on the employee who is being garnished, as well as the employer who must implement the garnishment. It’s important for businesses of all sizes to understand the different types of wage garnishment, familiarize themselves with the laws governing them, and learn ways to accurately and efficiently process them.

Using best practices can help streamline an employer’s responsibilities and ease the potential anxiety an employee may feel with this sometimes-necessary workforce issue.

Julie Farraj is vice president of Garnishment Services for ADP Added Value Services. Comment below or email [email protected].

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Wage assignment and employers’ responsibilities

Tough economic times raise some tricky HR issues—for example, when an employee’s financial straits begin to affect his employer.

Must we honor a payday loan wage assignment?

Q. An employee borrowed money from a payday loan service at a very high interest rate that I feel is unfair. The payday loan service sent me a “wage assignment” notice and told me that our company must withhold money from his paychecks.  What is a wage assignment, and does our company actually have to honor it? A. A wage assignment is a document that allows a creditor to attach part of the employee’s wages if the employee fails to pay a specific debt. The creditor does not have to obtain a judgment in a court proceeding before requesting payment. Under the Illinois Wage Assignment Act (740 ILCS 170), private employers are obligated to honor a creditor’s properly served demand for a valid wage assignment, unless an employee presents a timely, valid , written defense to the wage assignment.

What constitutes a valid assignment?

Q. How can I tell if a wage assignment is valid? How long is it valid? A. A valid wage assignment document must have the words “Wage Assignment” printed or written in boldface letters of not less than ¼ inch in height at the head of the wage assignment and one inch above or below the line where the employee signs the assignment. The employee must have signed the document in person, and the document must show the date of execution, the employee’s Social Security number, the name of the employer at the time of execution, the amount of money loaned or the price of the articles sold or other consideration given, the rate of interest or time-price differential to be paid, if any, and the date on which such payments are due. A wage assignment is valid for no more than three years after the employee signs it and the employer’s name appears on it. If the employee changes jobs, the wage assignment is valid for two years, even though the new employer’s name does not appear on the assignment.

Handling wage assignments

Q. How does the wage assignment process start? A. Assuming that the wage assignment document complies with the formal requirements, the creditor must serve “demand to withhold” on the employer. The demand is valid only if:

The employee has defaulted on the debt secured by the assignment for more than 40 days, and the default has continued to the date of the demand.

The demand contains a correct statement of the amount the employee is in default, and the creditor provides an original or a photocopy of the assignment to the employer.

The creditor has served a “notice of intention to make the demand” upon the employee, with a copy to the employer, by registered or certified mail not less than 20 days before serving the demand.

Putting on the brakes

Q. Can an employee stop the wage assignment process? A. The employee does have a right to contest the demand. If an employee has a legal defense to the wage assignment, the employee may—within 20 days after receiving a notice of demand or within five days after the employer is served with the demand—notify the employer, in writing, of any defense to the wage assignment and send a copy of the written defense to the creditor by registered or certified mail.   As a result, the employee’s wages are not subject to a demand served by the creditor unless the employer receives a copy of a subsequent written agreement between the creditor and the employee authorizing such payments. Similarly, if the creditor receives a copy of the defense prior to serving its demand upon the employer, the creditor may not serve the demand upon the employer.  Whether the employee’s defense is legally valid is not an issue the employer must resolve. Instead, the employee and the creditor may attempt to reach another agreement or the creditor may simply bring a separate lawsuit against the employee to collect an outstanding debt. 

Calculating the wage assignment payment

Q. How much must the employer withhold—and when? A. The employer must begin payment to the creditor no sooner than five business days after service of such a demand.  The employer must withhold the lesser of:

15% of weekly gross wages

The amount by which the disposable earnings for a week (pay remaining after federal and state taxes, Social Security deductions and any other amounts required by law to be withheld, including required retirement contributions) exceed 45 times the federal minimum wage, unless a notice of defense is received within that five-day period.

The employer shall be paid a fee of $12 for each wage assignment. That $12 is credited against the debt.

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Wage Assignment Overview

Usually, a creditor has to go to court to take part of your wages. This is called wage garnishment .

However, if you signed a form agreeing to a wage assignment, a creditor can take your wages without first going to court. You may agree to a wage assignment when you sign a loan contract. This allows your creditor to have money deducted from your wages if you don't pay.

Starting a Wage Assignment

You must be at least 40 days behind on your loan before the creditor can have your employer start taking money out of your paycheck.

First, the creditor must mail you and your employer a Notice of Intent to Assign Wages 20 days before they can make the demand. The notice has to be sent to you by certified or registered mail. You should receive advance warning that money will be deducted from your wages.

The notice must follow a specific form and must include the following information:

• be sent to you and your employer;
• be sent by registered or certified mail;
• inform you the creditor will demand part of your wages from your employer in 20 days;
• include a copy of the wage assignment; 
• tell you how much you owe; 
• include your options to respond to the notice; and
• include a revocation notice form.

The creditor then must send a demand letter to your employer. The demand must contain the correct amount in default and include a copy of the assignment. If the notice or demand does not follow the requirements of the law, they have no legal effect.

If you do not revoke the wage assignment, then 20 days later (once the loan is 40 days past due), your employer will start paying a portion of your paycheck to the creditor to pay off your debt.

Day One: Loan is past due

Day 20: Creditor sends notice

Day 40: Wage assignment begins.

Amount of a Wage Assignment

The creditor may take from your paycheck whichever amount is less between the following two options:

• 15% of your total wages, salary, commission, and bonuses for any workweek; or
• The amount your take-home pay (after taxes and other withholdings) for a week is over $630 (which is 45 times the 2024 state minimum hourly wage ).

That means that you can only have a wage assignment if you take home over $630 per week.

Stopping a Wage Assignment

You can stop a wage assignment at any time for any reason. If you don't want the deduction to happen, write a letter to your employer and creditor stating you are canceling the wage assignment. Remember, you will still owe the money. The creditor can use other methods to collect it. That probably means a court case, which may end with an involuntary wage garnishment.

Length of a Wage Assignment

A wage assignment is good for 3 years from the date you signed the wage assignment. But, if you changed jobs after you signed the wage assignment, the wage assignment is only good for 2 years from the date you signed the wage assignment.   If a creditor tries to collect money from your paycheck after the time period expires, you should talk to a lawyer. You might be able to sue the creditor in court.

Note : Child support and student loans can also result in garnishments without a court case.

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Wage garnishment — what employers should know

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An estimated 7% of American workers have their wages garnished every year, according to a recent study by ADP Research Institute. Wage garnishment can result from several types of debt, including unpaid state and federal taxes, overpaid Social Security and unemployment benefits, alimony, child support, student loans, credit card debt, medical bills, and personal bankruptcy. Anyone working in the United States or a U.S. territory has the potential of having earnings garnished for some type of obligation authorized by federal and/or state laws.

A garnishment order may come to an employer from any number of sources. Most are time sensitive and impose a significant compliance burden on employers. Without adequate procedures, employers risk failing to comply with garnishment orders.

"Employers need to understand the type of debt and who is collecting it, along with what the order is asking them to do," said Corrinne Flores, ADP director of government affairs. "The risks to employers vary, based on the type of garnishment, but there are potential financial and employee relationship risks for all," Flores said, adding, "Not knowing is not a defense."

"Employers have a number of questions because it's not always clear from the forms they get what they're supposed to do," said Randy Groendyk, J.D., a creditors' rights attorney at Varnum Law. "'How do I calculate this?' 'When do I start withholding?' 'How do I respond to this order?' they frequently ask," he said.

There is no single answer to what an employer needs to do when an employee faces garnishment. The requirements vary by type of debt and jurisdiction. Businesses operating in multiple states must determine what is required of them by various state laws; a large number of employees and locations can increase the potential for processing errors and noncompliance.

However, it's vitally important to understand an employer's responsibilities when an employee has his or her wages garnished, and it is often a complicated, multistep process. The employer is responsible for calculating the garnishment amount, withholding it through its payroll process, and forwarding payments to the correct agency or creditor. The garnishment must continue until the employer receives a release.

Failure to properly comply with garnishment orders can result in costly penalties. In some jurisdictions, an employer can be held liable for the full amount of the employee's judgment. Interest, court fees, and legal costs may be added. In certain states, failure to garnish wages for child support may result in the employer's having to make up the missing payments.

As with any legal issue, a good starting point is to consult legal counsel as you develop a process for handling wage garnishments. And after implementing your process, when questions arise, consult legal counsel as often as necessary. We asked experts for tips for employers when dealing with wage garnishment:

• If you receive a garnishment notice, follow its requirements.

"Any notice must be acted upon. Don't put it aside," said Amorette Nelson Bryant, author of Complete Guide to Federal and State Garnishment, 2018 Edition. Almost every garnishment has an interrogatory, where you must answer questions and respond to the creditor and/or the court. Failure to respond will result in liability and potentially a judgment against the employer under state and federal laws.

Once the order is received, the employer may be required to notify the employee in writing about the specifics of the order and the garnishment amount and time period. There may be a form provided, or the employer may draft a letter. Flores suggested that best practice is for the employer to notify the employee using a cover letter with a copy of the order attached, to ensure that the employee is fully notified and to provide the employee with the opportunity to contact the agency directly.

"Don't try to resolve an order just by talking with the employee involved," Groendyk said. "The employee may advise the employer that he/she already has taken care of it, but the employer can get into trouble by not following the instructions in the order and responding to it," he said.

• Develop procedures for garnishment processing.

While third-party payroll processing services and payroll software packages often include federal and state garnishment calculations and payment processing features, it is still incumbent on employers to have effective procedures in place.

"Garnishment processing is more than a clerical function," Groendyk said. "Have competent, trained people that review the orders and know how to handle them when they come in. Make sure they take this seriously, ask their supervisors if they have any questions about what to do with them, and understand the legal consequences to their employer for mishandling these," he advised.

That can be difficult when every employee situation and garnishment is different. There are rules for how to calculate the garnishment, including the base amount of wages subject to the calculation, and priority if an employee has more than one garnishment at a time. There may be a requirement to complete and submit a calculation worksheet or to provide other documentation. Independent contractors may or may not be subject to garnishment, and employees moving from state to state or working remotely add complexity.

"For employers with multiple locations, it is important that everyone knows what a garnishment order is for and is aware that it should be sent to a standard payroll processing location," Flores said.

• Be aware of and mitigate potential risks.

Employers must be aware of the applicable laws, rules, and regulations and actively monitor legislation and changes to garnishment laws. Businesses operating in multiple states must comply with the requirements of each. That requires employers to actively stay current with laws across multiple jurisdictions.

"The scope of garnishment has broadened with additional agencies using it for collection and additional types of payees being added," said Bryant. "It's not something that is going away." Employers may contact state departments of labor for assistance. The IRS website includes information for employers about levies on wages, along with IRS Publication 1494, which explains how employers compute amounts exempt from an IRS levy. The federal Office of Child Support Enforcement ( acf.hhs.gov/css ) offers guidance and compliance instructions.

Employers can get more information by attending conferences, leveraging state and federal agency contacts, participating on committees and in state and federal agency pilot projects, and joining distribution lists.

Maria L. Murphy is a CPA and freelance writer and editor based in Wilmington, N.C. To comment on this article or to suggest an idea for another article, contact Chris Baysden , associate director – content development, at [email protected].

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Wage Assignments in Consumer and Other Contracts

Most of the time an employee knows when his wages are about to be garnished: He is sued, the court enters a judgment against him for the amount owed, and thereafter a wage garnishment order ensues. The employee has plenty of time to plan for it, forewarn his employer, and make the process as palatable as possible, should a repayment arrangement not be possible.

Not so for many of the so-called “voluntary” wage assignments that are being included in consumer credit and loan agreements with greater regularity than ever before. These provisions allow the creditor to skip the formality, delay, and expense of the legal process altogether, and go straight to the employer with a demand for garnishment.

An employee typically does not learn about this kind of garnishment until after the garnishment has taken place and he notices his pay check is short.

Difference between Wage Assignments and Wage Garnishment Orders

Technically speaking, a wage assignment is a provision in a private agreement — often a consumer credit agreement like the ones used in buying a refrigerator.

The “wage assignment” provision assigns the borrower’s future wages to the creditor in the event of default by non-payment. If a default occurs, the creditor in effect forecloses on the security (the wages) by sending a garnishment demand to the employer. Usually, the letter is written by the creditor’s attorney or billing department.

To enforce a wage assignment, no court process is involved. That’s the nature of the provision. It says no court process need be involved and authorizes the creditor to skip the time and expense of court and go straight to the employer. It also, of necessity, eliminates the debtor’s opportunity to challenge the debt in court or seek limitations on the garnishment.

Most garnishments are based on a judgment or court order and constitute official orders of the court. The request for garnishment is made to the court and the court grants the request by issuing a garnishment order. This is the case for most wage garnishments for child support.

Types of Voluntary Wage Assignments

Voluntary wage assignments, often simply called “wage assignments,” are those that the indebted employee enters into by agreement. He may agree to it by signing a consumer credit or loan agreement, or he may agree to repay a debt by entering into a repayment agreement with a wage assignment provision.

The typical wage assignment provision allows the employer to take the employee’s future wages as security for the debt involved. In the event of default or nonpayment, it authorizes the creditor to go straight to the employer with a demand for wage garnishment, no court filing or judgment required.

Considering these wage assignments as “voluntarily” is a stretch. Most borrowers don’t read the fine print in consumer contracts and loan papers, have no bargaining strength to oppose these provisions even if they want to, and don’t learn about the wage assignment until it is too late to do anything about it.

Nonetheless, unlike a court order, they do have a voluntary component in that the borrower chose to obtain the credit and afterwards to use it to buy goods or services or receive cash.

Federal Garnishment Law Does Not Protect Wage Assignments

In 1970, Congress passed Title III of the Consumer Credit Protection Act. Under that Act, the federal government took control over wage garnishment proceedings for the first time.

Generally speaking, this law limits the extent to which earnings can be garnished to 25% of “disposable earnings” or to amounts above 30 times minimum wage, whichever is less. It also prohibits the employer from terminating an employee for any wage garnishment based on a single debt.

The definition of “disposable earnings” is key to the determination of the maximum allowed garnishment. “Disposable earnings” means earnings after reduction for legally-required deductions like federal, state and local taxes, the employee’s share of State Unemployment Insurance and Social Security, and Worker’s Compensation.

Importantly, the permitted deductions DO NOT include sums withheld as part of a voluntary wage assignment; as such deductions are not legally required. What this means is that wage garnishment protections do not take into account the effect of voluntary wage assignments. Also, they do not apply to real estate purchases (which have specific contracts).

Furthermore, because wage assignments are not technically considered garnishment under federal law, an employer can lawfully terminate an employee for a single garnishment based on a voluntary wage assignment. Put another way, the anti-termination protections of federal law do not apply to wage assignments.

State Law Limitations on Wage Assignments

Many states have passed laws making wage assignments invalid, due to their intrusive and potentially devastating effect on borrowers. Some states bar any form of wage assignment, while others limit wage assignments to only child or spousal support.

Still others require the written consent of both spouses, or the execution of an entirely separate document addressing the assignment (so as to prohibit it from being buried in the fine print). In all cases, the employer need not comply with an illegal wage assignment, and often would be legally liable for doing so.

Needless to say, the field of voluntary wage assignments is a complicated one. Consulting with an experienced labor and employment, debtor-creditor, and/or consumer counsel is an important part of properly navigating this area of employment.

Citations/references

Federal statute: title iii, consumer credit protection act (ccpa), 15 usc, §§1671 et seq., code of federal regulations: 29 cfr part 870, u.s. wage and hour division: fact sheet #30 – the federal wage garnishment law, consumer credit protection act’s title iii (ccpa), field operations handbook – 02/09/2001, rev. 644, chapter 16, title iii – consumer credit protection act (wage garnishment), summary of state laws on garnishment: http://www.nolo.com/legal-encyclopedia/free-books/employee-rights-book/chapter2-9.html.

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• Child Support

Child Support Wage Assignments

(This may not be the same place you live)

  What is a Wage Assignment?

A wage assignment is a special process that allows the court to order an employer to make direct payments to the custodial parent from the supporting parent’s wages. You can also directly apply to the court for a wage assignment. Remember that the notice of this action must be served on the paying parent’s employer.

The employer will deduct child support like any other deduction from the paying parent’s paycheck and send the money to the custodial parent. If the non-paying parent holds stable employment, this is a valuable tool for starting this process.

What Can Impact Wage Assignment?

What is the wage assignment duration, how does child support wage assignments function, how do courts enforce child support orders, when do i need to contact a lawyer.

If the non-custodial parent changes jobs, he must immediately notify the child support agency so the new employer can begin making the wage assignment payments. If the non-custodial parent becomes unemployed and receives unemployment compensation, the child support payment will usually be deducted from the unemployment benefits.

If the non-custodial parent is not receiving unemployment benefits, he is still mandated to make child support payments. However, it is recommended to report the loss of income to the court to ensure that the child support order adjusts accordingly.

A wage assignment is available only if the non-custodial parent is a salaried employee. If the non-custodial parent is self-employed or is otherwise not subject to wage withholding, he instead may be ordered to provide the child support payments directly to the child support agency.

If the non-custodial parent fails to make the required payments, the amount owed may be deducted from the non-custodial parent’s federal and state income tax refunds. Furthermore, liens may be placed on the non-custodial parent’s property, and the property may be sold to satisfy the child support owed.

In short, the non-custodial parent cannot escape the obligation to pay child support by moving to another state because all states must enforce child support against out-of-state non-custodial parents. Each state has its own form of interstate enforcement legislation, such as the Uniform Reciprocal Enforcement of Support Act (URESA), which allows for the enforcement of support orders across state lines more uniformly.

The wage assignment continues until the obligation to pay child support ends, whether there is a custody modification, the non-custodial parent passes away, or the child becomes emancipated. Emancipation happens when the child reaches the state’s age of majority, which is eighteen, according to the majority of states.

Emancipation may also occur if the child marries, enlists in the armed services, or leaves the care and control of the custodial parent. However, if the child returns to live with the custodial parent before reaching the age of majority, the obligation to pay child support usually resumes, and the non-custodial parent’s income will again be subject to a wage assignment.

After the court decides the amount of child or spousal support, the wage assignment informs the employer how much to deduct from each paycheck and where to send the payment. With a wage assignment, if the parent ordered to pay support is regularly employed, the employer will deduct the support payments directly from their paycheck.

Most support is paid this way, and federal, and state laws mandate it in almost all child support cases. Typically, it is the employer’s responsibility to withhold the wages if there is a wage assignment. If the parent has other wage assignments, child support is first deducted before other withholding orders. Spousal or partner support assignments come after child support wage assignments are in place.

Wage assignments are usually incurred for debts that have gone unpaid for a long time. Wage assignments can be split into two categories: voluntary and involuntary. Employees may sometimes choose a voluntary wage assignment to pay union dues or contribute to a retirement fund. Moreover, employees may even voluntarily opt into a wage assignment plan as a part of a payday loan repayment promise.

When a wage assignment is undertaken voluntarily or required by a court and served to an employer, it is considered part of an employer’s payroll procedure. The employee has to do nothing, as their paycheck is already decreased by the amount of the assignment and noted on their pay stub.

As child support is usually ordered as a monthly amount, the calculation is provided to the employer as to the proper amount to withhold from each paycheck based on whether the employee is paid on a weekly, bi-weekly, semi-monthly, or other basis to correspond to the monthly amount ordered.

For instance, if child support was ordered for $200 a month and the employee was paid weekly, the withholding order would direct the employer to take out $48.43 from each paycheck for child support. Once the employer removes the calculated amount from the parent’s paycheck, they send it to the Support Payment Clearinghouse. The payment is then accounted for and recorded by the Clearinghouse and is sent on to the custodial parent .

Generally, if the non-custodial parent starts a new job, they are responsible for giving the wage assignment to their new employer. They are responsible for notifying the Clerk of the Superior Court and Support Payment Clearinghouse of their new employer’s contact information within 10 days. An employer who fails, without a good cause, to adhere to the terms of a wage assignment is liable for the amount overdue.

The employer may be entitled to charge a small administrative fee for processing the required payments. Still, it is against the law for an employer to terminate an employee due to a court-ordered wage assignment for child support. A wage assignment is not mandated when the non-custodial parent is self-employed, not employed, or does not have a regular source of income. In those situations, they are responsible for making payments directly to the Support Payment Clearinghouse.

Judges enforce child support orders, usually with “income assignments.” When judges form child support orders, they order the paying parent’s employer to take the child support out of their wages and send it to the Department of Revenue (DOR/CSE) Child Support Enforcement Division.

The DOR then sends the child support order to you. As mentioned earlier, child support taken out of the wages is called an “income assignment” or “wage assignment.” The income assignment is one of the primary ways judges ensure that child support is paid on time. In some cases, parents fall behind in paying their child support.

In some situations, they disobey the child support order. When that happens, you may have to return to the court to enforce your child support order . Making sure the paying parent follows through with the child support order is considered “enforcing” the order.

Courts can enforce child support orders by holding the paying parent in contempt. DOR/CSE can enforce child support orders by:

• Collecting overdue child support;
• Levying your bank account;
• Charging interest and penalties;
• Increasing the amount withheld from your paycheck by 25%;
• Placing a lien on your real estate or personal property;
• Seizing your personal property;
• Suspending your license;
• Intercepting your tax refunds;
• Making it hard to get credit and;
• Filing a Complaint for Contempt.

If you do not receive the required child support payments or have failed to make the necessary payments. Both situations have legal remedies available, and you will need to seek a local child support attorney to determine your options within your jurisdiction.

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What is wage garnishment?

Laura Gariepy

Alana Rudder

“Verified by an expert” means that this article has been thoroughly reviewed and evaluated for accuracy.

Updated 2:06 p.m. UTC Oct. 24, 2023

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When an employee defaults on debt or gets behind on other financial obligations, their creditors or other interested parties can take action, such as initiating a lawsuit or pursuing wage garnishment. 

“A wage garnishment is a legally mandated process whereby an employer withholds a portion of an employee’s wages to settle a debt or financial obligation. The most common types of wage garnishments are child support and tax levies,” says Kim Robinson, FPC and product manager at BambooHR.

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How does wage garnishment work?

Once a wage garnishment order gets issued, the employer will receive written notification from the court or government. The employer must comply with the order details and begin withholding and remitting a percentage of the employee’s pay to the appropriate entity. The employee will subsequently receive a smaller paycheck.

Types of wage garnishment 

Wage garnishment occurs when an employer must withhold and remit a percentage of an employee’s disposable earnings to a creditor. On the other hand, non-wage garnishment, also known as a bank levy, occurs when a creditor can directly seize funds from a debtor’s bank account. 

Just as there are funds that can’t get garnished from your pay, certain income is exempt from non-wage garnishment. For example, up to two months’ worth of Social Security or veterans benefits are protected from seizure.

How much can legally be garnished? 

Title III of the Consumer Credit Protection Act (CCPA) limits the percentage of disposable earnings that can be garnished per pay period. Disposable earnings are the funds left over after legally required deductions, like taxes and mandatory state retirement system contributions, get taken from an employee’s gross pay.

CCPA limits vary based on the specific situation. Here are several examples:

Important note: Garnishment limits don’t apply to certain debts, such as federal or state taxes. An employee can also exceed the limit under a voluntary wage assignment.

What are an employer’s responsibilities?

As an HR, payroll professional or business owner, there are several steps you need to take when you receive a wage garnishment notice:

• Notify the employee that you received the wage garnishment notice. 
• Respond to the notice by filling out and returning the enclosed form, if applicable. (You must still respond to the garnishment order if the named employee no longer works for your organization.)
• Check your state’s wage garnishment laws. If they differ from Title III, follow whichever regulations favor the employee.
• Start garnishing the employee’s wages per the order.

If your employee has multiple garnishments, they typically get paid out on a first-come, first-served basis. However, child support and tax garnishments take precedence over other debt.

Many states allow employers to recoup a small amount (generally a few dollars) to cover administrative costs for child support garnishment orders. Companies may be able to get nominally compensated for processing other orders, too.

What can an employee do about wage garnishment? 

If you’re an employee facing wage garnishment, you can:

• Challenge it in court: File the appropriate paperwork with the clerk of court. Be sure to respond to the garnishment order quickly, as your window to contest the order may be small.
• Try to work out an alternate payment arrangement with your creditor: The creditor may be willing to help you avoid garnishment through a payment plan or settlement.
• File for bankruptcy : Doing so will pause collection efforts and shed the debt (not applicable to child or spousal support). Other types of debt, such as student loans or tax debt, may not get discharged.
• Get professional help: The Consumer Financial Protection Bureau (CFPB) says it may be worth hiring an attorney who understands your rights and can possibly help you negotiate a favorable settlement with your creditor.

Until your employer is notified otherwise, it must withhold and remit earnings that are subject to a garnishment per the garnishment order.

Frequently asked questions (FAQs)

Federal law prohibits an employee from being fired for a single wage garnishment. However, employees with multiple garnishments aren’t protected under the legislation.

Wage garnishment is a mandatory, often court-ordered, seizure of a percentage of an employee’s earnings by a creditor. On the other hand, voluntary wage assignment is an optional transfer of earnings to a creditor that an employee elects to initiate.

Robinson says, “Income that can be garnished typically includes wages, salaries, bonuses, commissions and other earned income. Depending on the circumstances, things like rental income or retirement benefits may also be garnished.”

An employer should only stop garnishing wages under a few circumstances. Most commonly, the company will eventually receive an official notice revoking the garnishment order. The debt in the order may also get fully repaid or the garnishment period may end per the date listed in the order.

Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.

Blueprint has an advertiser disclosure policy . The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone. Blueprint adheres to strict editorial integrity standards. The information is accurate as of the publish date, but always check the provider’s website for the most current information.

Laura started writing about personal finance in early 2018 when she took a sabbatical from her career in human resources and launched a blog discussing her journey. She realized she could earn a more lucrative and flexible living as a freelance writer, so she soon went all-in on being self-employed. Laura loves to write about managing your money, navigating your career, and running a successful business. Her work has been featured in Forbes, LendingTree, Rocket Mortgage, The Balance, and many other publications. She has also earned an MBA and a Bachelor's degree in Psychology.

Alana is the deputy editor for USA Today Blueprint's small business team. She has served as a technology and marketing SME for countless businesses, from startups to leading tech firms — including Adobe and Workfusion. She has zealously shared her expertise with small businesses — including via Forbes Advisor and Fit Small Business — to help them compete for market share. She covers technologies pertaining to payroll and payment processing, online security, customer relationship management, accounting, human resources, marketing, project management, resource planning, customer data management and how small businesses can use process automation, AI and ML to more easily meet their goals. Alana has an MBA from Excelsior University.

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Wage Garnishment: What Employers Need to Know

Table of Contents

You’ve received a notice that one of your employees is subject to wage garnishments, meaning you must withhold a portion of their paycheck and transmit it to a specific source. Wage garnishment notices are court-approved creditor attempts to collect on a judgment . Employers must comply with these notices and help execute the wage garnishment. 

Handling wage garnishment notices may be confusing and challenging. We’ll provide an overview of the wage garnishment process and what employers should and shouldn’t do in response to a garnishment notice.

What are the rules of wage garnishments?

Wage garnishment is covered by the federal Consumer Credit Protection Act (CCPA), the specific regulations of which are administered by the U.S. Department of Labor. Wage garnishments are generally a response to unpaid debts. 

There are six common types of wage garnishments: 

• Child support
• Bankruptcy orders
• Student loans
• Wage assignments

Under the law, wage garnishments can claim either 25% of an employee’s disposable earnings or all disposable earnings beyond 30 times the federal minimum wage — whichever is less. 

In other words, only a portion of an employee’s paycheck can be applied to wage garnishments. There are cases, however, in which wage garnishments can claim even more of an employee’s paycheck, such as in the case of child support, when up to 50% of disposable income can be taken.

Can employers take action against the employee?

As an employer, you are prohibited from retaliating against an employee who is subject to wage garnishments for one debt; firing an employee or punishing them in the workplace is illegal.

“An employer is responsible for executing a wage garnishment order and cannot terminate the employee to avoid compliance,” said Thomas J. Williams, a tax accountant at Your Small Biz Accountant. “The agencies require the employer to process the request and remit the monies promptly.”

However, if an employee is subject to multiple or repeated wage garnishments, that’s a different story. In these cases, the level of protection for employees dealing with wage garnishments varies from state to state.

How do you process wage garnishment orders?

The wage garnishment process for employers usually begins with a garnishment notice or order, which generally comes from a court or government agency. As soon as an employer receives the notice, they must start withholding the specified amount from the employee’s paychecks and send it to the creditor.

However, employees have a right to challenge the garnishment in court. If they choose to do so, employers should remit the garnishment to the court or agency that issued the wage garnishment order, and that body will act as custodian of the funds until the dispute is settled.

After receiving a wage garnishment notice, employers must confirm receipt and indicate their intent to comply with the order. This communication must be sent within one week of the employer’s receipt of the original order.

How do you track wage garnishments?

Wage garnishments involve more than giving part of an employee’s check to the government; you must follow specific rules and calculations or else risk fines and other penalties. Too many missed or improperly calculated payments can lead to penalties as large as the employee’s debts, so they have the potential to hurt your business’s bottom line seriously. 

However, specific tools can help you track garnishment amounts by making them automatic elements of your payroll processing checklist . Some of the best payroll services and best accounting software include options to calculate employee wage garnishments automatically. This is the most straightforward way to track wage garnishments.

Payroll services that handle wage garnishments include the following: 

• Paychex: Paychex is our pick for the best payroll processing service for larger businesses. It includes deductions for wage garnishments and other factors, like health insurance and uniforms. Read our in-depth Paychex review to learn more.
• Intuit QuickBooks Payroll: QuickBooks is our choice for the best payroll service for small businesses. It lets you run payroll for employees at various pay grades in every state and can handle all garnishments and tax withholdings. Read our Intuit QuickBooks Payroll review to learn more. 

You should also maintain working knowledge of wage garnishment laws within your state. No two states have the same laws, and no two people with wages garnished have the same situation. A lack of knowledge could end up hurting you if you’re unprepared. 

What support is there for handling a wage garnishment?

Dealing with wage garnishment can be challenging for employers and employees, but several resources can help ease the burden.

“The employer may be eligible to keep a nominal processing fee from each paycheck, depending on the state jurisdiction,” Williams said. “And most payroll companies are willing to input the garnishment details into the employer’s payroll file to ensure that it appears correctly on each paycheck.”

Some states even offer reimbursement to employers for incurring the administrative burden of wage garnishments. It’s a good idea to read up on your state’s laws about processing fees or reimbursement and contact your payroll service or PEO when you receive a wage garnishment notice.

What if an employee is subject to multiple garnishments?

A single employee might be subject to more than one garnishment. Sometimes an employee will already be subject to the maximum garnishments allowed under the law when employers receive a new notice. In that case, which one gets paid?

For the most part, it’s first come, first served. Whichever garnishment notice arrived first tends to receive priority. However, there are a few cases when that is not so. For example, child support garnishments or tax-related garnishments receive top priority over other debts. They can even supplant existing garnishments, thus reducing their repayment rate or delaying them.

How does a garnishment end?

How and when a wage garnishment situation ends can vary from state to state. However, there are a few standard ways wage garnishments usually conclude:

• Some garnishment notices might explicitly list an end date, regardless of the total amount owed.
• An employer might receive a notice of termination for a wage garnishment.
• An employee’s debt could be paid off through wage garnishment.

If any of these milestones are reached, employers should stop withholding the garnishment from the employee’s paychecks and resume their usual compensation immediately.

Be prepared for wage garnishment

Around 2.9% of the U.S. workforce has wages garnished for consumer debts. That may not sound like a lot, but the U.S. labor population is around 164.36 million, which translates to over 4 million people with garnished wages.  

While that doesn’t guarantee it will happen to someone on your team, it definitely could — and it’s best to be prepared. 

Isaiah Atkins contributed to the reporting and writing in this article. Some source interviews were conducted for a previous version of this article.

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The Tasks, Big and Small, of Wage Garnishment

Part of a series  |  Wage Garnishment Insights

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Do you meet all requirements when garnishing wages? This checklist will help you stay in compliance.

Most employers know the basics of wage garnishment: Receive a garnishment order; enter the information into the payroll system; and submit the withheld money to the appropriate agencies and courts.

Those are the fundamental pillars of wage garnishment, but employers have additional obligations beyond complying with the garnishment order. Complying with these additional obligations requires additional oversight. Below is a snapshot of some of the various issues that can land on your desk—and that you should consider when designing and reviewing your internal processes.

New hire reporting

Before an employer receives a garnishment order, they already have compliance obligations. The Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996 mandates that employers report specific information on newly hired employees to state new hire agency(ies). Also, 21 states /territories have passed legislation requiring companies to do the same for many newly hired independent contractors.

This data is critical to child support programs. States enter the data into the State Directory of New Hires; they also forward it to the National Directory of New Hires, which is accessed by other states and agencies—including child support programs.

This is how child support programs locate those who have an outstanding child support obligation—and how they issue withholding orders to employers.

Verification of employment

Some agencies or third parties may ask you to verify an employee's income or employment status. Should you receive such a request from a federal or state government agency, you may be obligated to provide the appropriate information. Check your state's requirements for specific guidelines.

In the case of child support, you may be held liable if you fail to respond to a government agency request.

National Medical Support Notices

Federal Law requires that every child support order include a provision that requires parents to provide medical support for their child(ren). The support can be in the form of health insurance, cash payments, or both.

Child support agencies send a National Medical Support Notice when notifying you to enroll an employee's child(ren) in your health insurance program. You are required to acknowledge receipt of the notice and advise as to whether you are able to comply. If complying, you'll need to forward the information to your health benefits provider. (Note that the federal Office of Child Support has implemented an electronic format for the National Medical Support Notice. Some states have also adopted this protocol.)

Child support agencies send an Income Withholding Order (IWO) when notifying you to garnish your employee's wages for cash medical support. In such a situation, the protocol is the same as that of other wage garnishment orders.

Remitting payment

Employers often ask how long after processing a withholding order they are required to remit payment.

For child support garnishments, state requirements vary and are based on your employee's pay date.

States follow different methods for non-child support garnishments. Some direct that you withhold funds from each paycheck but wait for instructions on when to remit. Others advise that you remit payments monthly or within a specified timeframe after each pay date.

The best practice is to follow the instructions that accompany the withholding order and applicable laws.

Notifications and responses

Many states require you to notify employees when a wage garnishment order is received. Others require or recommend that you provide employees with copies of the orders. Consider this a best practice. By sharing this information with your employees, you're giving them a chance to understand how their pay will be affected. You're also giving them time to contact the garnisher, discuss potential modifications to their wage garnishment, claim a household exemption (if applicable), etc.

Some withholding orders also require that you provide specifics regarding an employee's income. You may be asked to furnish these details on a monthly or paycheck-to-paycheck basis. Note that certain agencies require electronic responses instead of hard copies. You may often be required to provide this as well as additional information formally, e.g., as answers to interrogatories, and to file a signed and, in some cases, notarized document with courts of law, under penalty of perjury.

Also, some agencies require that you notify them when an employee leaves your company. Be sure to follow this directive; it is how agencies and other garnishers keep track of where an employee is working—and where to send withholding orders.

Withholding duration

Once you start garnishing an employee's wages, a new question arises: When should you stop?

In the case of child support, the requirements vary by state and can change if an employee is in arrears.

Other types of garnishment orders—those not related to child support—may be effective until the entire amount of the debt is paid or for a limited time period. These requirements vary by state too. Be aware that a new order may be issued when the previous one expires.

Should you receive multiple garnishment orders pertaining to the same employee, you may be able to handle multiple orders at the same time or required to handle them sequentially—that is, one at a time—prioritizing some over others. Check state requirements.

Generally, you shouldn't stop garnishing an employee's wages unless you've received specific instructions to do so, or the employee leaves your company. (Also, keep in mind that you may have to restart an order when a former employee returns to your company. Again, check your state's requirements.)

Electronic options

Many agencies and third parties are using electronic technology to streamline their processes.

You can opt to receive child support orders electronically, and in some states, you can also choose to receive other types of wage garnishments, such as tax levies, in the same fashion.

When you receive a withholding order, check with the sending agency to confirm your options. If offered, electronic processing will allow you to transmit information more quickly, and handle wage garnishments more efficiently.

Additional inquiries and calls

After you've processed a withholding order, withheld the appropriate amount, sent in or followed payment requirements, and responded with the requested information, your task list may appear substantially complete. Still, an agency or third party may contact you with additional requests or correspondence that require your attention.

Ease your burden and improve compliance

ADP Wage Garnishments , one of the solutions offered in ADP's suite of ADP SmartCompliance ® solutions, provides support for administering withholding orders for earnings paid through payroll.

Download the SmartCompliance ® guidebook to learn how ADP solutions can reduce your administrative burdens while helping you maintain or improve compliance.

The information herein must not be copied, transmitted, or distributed in any form or by any means without the express written permission of ADP. The information and materials provided herein is for informational purposes only and not for the purpose of providing accounting, legal, or tax advice. The information and services ADP provides should not be deemed a substitute for the advice of any such professional. Such information is by nature subject to revision and may not be the most current information available.

ADP, the ADP logo, and ADP SmartCompliance are registered trademarks of ADP, Inc. All other marks are the property of their respective owners. Copyright © 2024 ADP, Inc. All rights reserved.

Up Next In This Series

Medical Support For Kids: National Medical Support Notice Compliance Checklist

Mandated Medical Support for Kids: Compliance Best Practices

Back to School: Student Loan Wage Garnishment 101

[Infographic] Wage Garnishment Compliance Checklist

Child Support and Other Wage Garnishments — Your Questions Answered

[Infographic] The Wage Garnishment Ecosystem

Roles and Responsibilities Within the Wage Garnishment Ecosystem

New Pay Options Can Affect How You Garnish Wages

Should You Garnish Earnings for Independent Contractors?

9 Best Practices for Processing Wage Garnishments

Wage Garnishing: Handling Bonuses when Child Support is Involved

Wage Garnishment: What Organizations Need to Know About Compliance

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Arizona child support laws | hildebrand law, pc.

• Calculating Income for Child Support in Arizona
• Arizona Child Support Age Limit
• Arizona Uniform Interstate Family Support Act Statutes
• Child Support and an Unemployed Parent in Arizona
• Domesticate Child Support Order
• Modifying Child Support When Neither Parent Lives in Arizona
• SSDI Payments Offset Medical Expenses for a Child in Arizona
• Effect of Errors in Registering a Child Support Order From Another State in Arizona

What is a Wage Assignment in Arizona

Table of contents, arizona wage assignments.

You may be asking what is a wage assignment in Arizona. A Wage assignment in Arizona is an order requiring a parent’s employer to deduct that parent’s child support and/or spousal maintenance obligation directly from his or her paycheck.

The court is required by law to order support payments to be paid through a wage assignment in Arizona unless both parties agree otherwise.

How a Wage Assignment is Issued in Arizona

A wage assignment is authorized to be issued by the Court by Arizona revised statute section 25-504. That statute authorizes the issuance of a wage assignment for the payment of child support and/or spousal maintenance when a parent files a verified request with the Clerk of the Court.

The verified request must include the following information:

• The name of the person or agency entitled to receive support or spousal maintenance.
• The monthly amount of any current support and the monthly amount of any spousal maintenance ordered by the court.
• The specific amount requested for any support arrearages, spousal maintenance arrearages or interest.
• The name and address of the payor to whom it is requested the order of assignment be directed and the name of the person obligated to pay support or spousal maintenance.

The Clerk of the Court, without notice or a hearing to the person ordered to pay support, will then issue the wage assignment of a portion of the parent’s income to pay the amount of child support and/or spousal maintenance ordered by the court. The Clerk of the Court will then notify the person ordered to pay support about the issuance of the wage assignment to his or her employer.

The wage assignment is then sent directly to the parent’s employer. The employer then deducts the support amounts directly from the parent’s paycheck and sends that payment to the Arizona Support Payment Clearinghouse .

When a Wage Assignment Ends in Arizona

The employer will continue to deduct the support amounts from the employee’s paycheck until either a court issues an order modifying or terminating the wage assignment or the clerk of the court terminates the wage assignment based upon a written and notarized stipulation signed by both parents or former spouses stating all support owed has been paid is filed with the clerk of the court.

Prohibited Employer Conduct Relating to a Wage Assignment

It is important to know that an employer is prohibited from firing or punishing an employee simply because of the issuance of a wage assignment on an employee’s wages. Arizona law allows an employee wrongfully terminated or disciplined as a result of a wage assignment to sue for damages, attorney fees and, in some cases, for reinstatement of an employee’s job.

Arizona Wage Assignment Attorneys

If you have questions about what is a wage assignment in Arizona, you should seriously consider contacting the attorneys at Hildebrand Law, PC. Our Arizona child support and family law attorneys have over 100 years of combined experience successfully representing clients in child support and family law cases.

Our family law firm has earned numerous awards such as US News and World Reports Best Arizona Family Law Firm, US News and World Report Best Divorce Attorneys, “Best of the Valley” by Arizona Foothills readers, and “Best Arizona Divorce Law Firms” by North Scottsdale Magazine.

Call us today at (480)305-8300 or reach out to us through our appointment scheduling form to schedule your personalized consultation and turn your child support or family law case around today.

Other Frequently Asked Questions About Wage Assignments in Arizona:

How much can be garnished by a wage assignment for support in arizona.

The maximum amount of support, whether child support or alimony, that can be garnished by a Wage Assignment is 50% of your earnings.

How do I stop a garnishment through a Wage Assignment for support in Arizona?

You can file a motion to stop a wage assignment for support in Arizona by filing a motion to terminate the wage assignment because your support obligation has ended or will end soon.

Other Articles About Child Support in Arizona

• ARIZONA CHILD SUPPORT LAWS
• ARIZONA UNIFORM INTERSTATE FAMILY SUPPORT ACT (UIFSA) STATUTES
• ATTRIBUTING INCOME FOR CHILD SUPPORT IN ARIZONA
• DIVIDING UNCOVERED MEDICAL EXPENSES IN AN ARIZONA CHILD SUPPORT CASE
• THE RELATIONSHIP BETWEEN CHILD SUPPORT AND DEBTS IN ARIZONA
• THE DEFINITIVE GUIDE TO CHILD SUPPORT IN ARIZONA
• DUE PROCESS REQUIRES NOTICE OF A CHILD SUPPORT MODIFICATION
• CHILD SUPPORT DEVIATION IN ARIZONA
• IS AN INCREASE IN INCOME CAUSE TO MODIFY CHILD SUPPORT IN ARIZONA
• CHILD SUPPORT AND ASSETS IN ARIZONA
• EFFECT OF EMPLOYMENT BENEFITS ON CHILD SUPPORT IN ARIZONA
• EFFECT OF STOCK OPTIONS ON CHILD SUPPORT IN ARIZONA
• MODIFYING CHILD SUPPORT FROM ANOTHER STATE IN ARIZONA
• CHILD SUPPORT MUST BE MODIFIED WHENEVER CHILD CUSTODY ORDERS CHANGE IN ARIZONA
• REGISTERING A CHILD SUPPORT ORDER IN ARIZONA
• BURDEN OF PROOF FOR A DEVIATION IN CHILD SUPPORT IN ARIZONA
• REIMBURSEMENT FOR OVERPAID CHILD SUPPORT IN ARIZONA
• GIFTS AND FREE RENT MAY BE INCOME FOR CHILD SUPPORT PURPOSES
• COURT DISCRETION TO ADD RECURRING GIFTS AS INCOME FOR CHILD SUPPORT
• CHILD SUPPORT AND THE NARCISSIST PARENT
• INCLUDING INCOME FROM A SECOND JOB IN ARIZONA CHILD SUPPORT CALCULATIONS
• STANDARD OF PROOF TO ESTABLISH A WAIVER OF PAST CHILD SUPPORT IN ARIZONA
• CHILD SUPPORT CANNOT BE A PERCENTAGE OF A PARENT’S INCOME IN ARIZONA
• THE AGE WHEN CHILD SUPPORT ENDS IN ARIZONA
• SSDI PAYMENTS OFFSET MEDICAL EXPENSES FOR A CHILD IN ARIZONA
• MODIFYING CHILD SUPPORT WHEN NEITHER PARENT LIVES IN ARIZONA
• HOW TO MODIFY OR ENFORCE A CHILD SUPPORT ORDER ISSUED IN ANOTHER STATE
• HOW TO MAKE ARIZONA CHILD SUPPORT PAYMENTS
• HOW IS INCOME CALCULATED FOR CHILD SUPPORT IN ARIZONA
• HOW TO ENFORCE A CHILD SUPPORT ORDER IN ARIZONA
• WHAT IS CONSIDERED GROSS INCOME FOR ARIZONA CHILD SUPPORT
• CALCULATING A PARENT’S INCOME FOR CHILD SUPPORT IN ARIZONA
• ERRORS IN REGISTERING A CHILD SUPPORT ORDER FROM ANOTHER STATE IN ARIZONA
• DOMESTICATING A CHILD SUPPORT ORDER IN ARIZONA
• CHILD SUPPORT AND AN UNEMPLOYED PARENT IN ARIZONA
• WHAT DOCTORS SHOULD KNOW ABOUT CHILD SUPPORT IN ARIZONA
• CAN A NON-CUSTODIAL PARENT RECEIVE CHILDREN’S SOCIAL SECURITY BENEFITS IN ARIZONA
• START DATE FOR TEMPORARY SUPPORT IN ARIZONA
• EFFECT OF DENIAL OF VISITATION ON CHILD SUPPORT PAYMENTS IN ARIZONA
• ARIZONA CHILD SUPPORT FREQUENTLY ASKED QUESTIONS
• EFFECT OF ERRORS IN REGISTERING A CHILD SUPPORT ORDER FROM ANOTHER STATE IN ARIZONA
• WHEN YOU CAN MODIFY CHILD SUPPORT IN ARIZONA
• GIFT INCOME AND MODIFICATION OF CHILD SUPPORT IN ARIZONA
• WAIVER OF PAST CHILD SUPPORT BY AGREEMENT IN ARIZONA
• UPWARD DEVIATION IN CHILD SUPPORT IN ARIZONA
• MODIFYING A CHILD SUPPORT ORDER FROM ANOTHER COUNTRY
• OBJECTION TO CHILD SUPPORT ARREARS IN UIFSA DOMESTICATION IN ARIZONA
• CAN A SPOUSE’S INCOME BE CONSIDERED FOR CHILD SUPPORT IN ARIZONA
• LEGAL METHODS OF COLLECTING CHILD SUPPORT PAYMENTS IN ARIZONA
• ENFORCEMENT OF A FOREIGN COUNTRY CHILD SUPPORT ORDER IN ARIZONA
• DRIVERS LICENSE RESTRICTIONS FOR UNPAID CHILD SUPPORT IN ARIZONA
• CAN A LOAN BE INCLUDED AS INCOME FOR CHILD SUPPORT IN ARIZONA
• OVERPAYMENT OF CHILD SUPPORT IN ARIZONA
• PAST DUE SUPPORT PAYMENTS APPLY FIRST TO CHILD SUPPORT BEFORE ALIMONY
• CALCULATING CHILD SUPPORT WITH SPLIT CUSTODY OF CHILDREN IN ARIZONA
• EFFECT OF DELAY IN COLLECTING CHILD SUPPORT ARREARAGES IN ARIZONA
• RECOVERING CHILD SUPPORT NOT ORDERED IN A DIVORCE DECREE IN ARIZONA
• LEGAL OPTIONS FOR COLLECTING CHILD SUPPORT PAYMENTS IN ARIZONA
• ARIZONA COURT’S AUTHORITY TO HEAR CHILD SUPPORT ENFORCEMENT ACTIONS
• IMPACT OF WITHHOLDING A CHILD ON CHILD SUPPORT IN ARIZONA
• SISTER STATE’S RIGHT TO MODIFY ARIZONA CHILD SUPPORT RULING
• IS A CHILD SUPPORT ORDER VOID IF IT DOES NOT MENTION ARREARS IN ARIZONA
• CHILD SUPPORT OBLIGATIONS OF A MINOR IN ARIZONA
• TIME LIMIT TO COLLECT CHILD SUPPORT ARREARAGES IN ARIZONA
• RETROACTIVE MODIFICATION OF A CHILD SUPPORT ORDER IN ARIZONA
• CONTEMPT OF COURT FOR UNPAID CHILD SUPPORT ARREARAGES IN ARIZONA
• SUPPORT FOR DISABLED ADULT CHILDREN IN ARIZONA
• CALCULATING INCOME FOR CHILD SUPPORT IN ARIZONA
• THREE YEAR LIMITATION FOR COLLECTING CHILD SUPPORT ARREARAGES
• DISMISSING MODIFICATION OF CHILD SUPPORT FOR NOT DISCLOSING FINANCIAL DOCUMENTS
• ARIZONA CHILD SUPPORT MODIFICATIONS MUST INCLUDE ANY CHANGES IN PARENTING TIME
• EQUITABLE DEFENSES TO FAMILY SUPPORT IN ARIZONA
• AFFIDAVIT OF CHILD SUPPORT ARREARS FROM ANOTHER STATE IN ARIZONA
• PERSONAL JURISDICTION AND CHILD SUPPORT ARREARAGES IN ARIZONA
• PERSONAL JURISDICTION OVER A NON-RESIDENT IN AN ARIZONA CHILD SUPPORT CASE
• ARIZONA CRIMINAL LAW FOR NON-PAYMENT OF CHILD SUPPORT IS CONSTITUTIONAL
• BURDEN OF PROOF IN A MODIFICATION OF CHILD SUPPORT CASE IN ARIZONA
• FULL FAITH AND CREDIT CLAUSE REQUIRES PERSONAL JURISDICTION TO ENFORCE SUPPORT ORDERS
• CHILD SUPPORT IN A BANK ACCOUNT IS EXEMPT FROM EXECUTION BY CREDITORS
• NON-PARENT LAWSUIT FOR REIMBURSEMENT OF CHILD SUPPORT IN ARIZONA

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2022 Illinois Compiled Statutes Chapter 740 - CIVIL LIABILITIES 740 ILCS 170/ - Illinois Wage Assignment Act.

(740 ILCS 170/.01) (from Ch. 48, par. 39.01)

Sec. .01. Short Title. This Act shall be known and may be cited as the Illinois Wage Assignment Act.

(Source: P.A. 83-867.)

(740 ILCS 170/1) (from Ch. 48, par. 39.1)

Sec. 1. No assignment of wages earned or to be earned is valid unless

(1) Made in a written instrument (a) signed by the wage-earner in person and (b) bearing the date of its execution, the social security number of the wage-earner, the name of the employer of the wage-earner at the time of its execution, the amount of the money loaned or the price of the articles sold or other consideration given, the rate of interest or time-price differential, if any, to be paid, and the date when such payments are due;

(2) Given to secure an existing debt of the wage-earner or one contracted by the wage-earner simultaneously with its execution;

(3) An exact copy thereof is furnished to the wage-earner at the time the assignment is executed;

(4) The words "Wage Assignment" are printed or written in bold face letters of not less than 1/4 inch in height at the head of the wage assignment and also one inch above or below the line where the wage-earner signs that assignment;

(5) Written as a separate instrument complete in itself and not a part of any conditional sales contract or any other instrument.

The requirement of the social security number of the wage-earner imposed by this Act applies only as to wage assignments made after January 1, 1966.

(Source: Laws 1967, p. 2049.)

(740 ILCS 170/2) (from Ch. 48, par. 39.2)

Sec. 2. Demand on an employer for the wages of wage-earner by virtue of a wage assignment may not be served on the employer unless:

• (1) There has been a default of more than 40 days in payment of the indebtedness secured by the assignment and the default has continued to the date of the demand;
• (2) The demand contains a correct statement as to the amount the wage-earner is in default and the original or a copy of the assignment is exhibited to the employer; and
• (3) Not less than 20 days before serving the demand, notice required under Section 2.2 has been served upon the employee, and an advice copy sent to the employer, by 2 methods: (i) first class mail; and (ii) registered or certified mail.

Service of any demand without complying with this Section has no legal effect. Proof of certified mail is prima facie evidence of service.

A demand under this Section applies only to wages due at the time of service of the demand and upon subsequent wages until the total amount due under the assignment is paid, or, if the wage assignment is revocable under federal law, until the employee revokes it.

(Source: P.A. 99-903, eff. 1-1-17.)

(740 ILCS 170/2.1) (from Ch. 48, par. 39.2a)

Sec. 2.1. A demand shall be in the following form:

"Demand is hereby made upon an assignment of salary, wages, commissions or other compensation for services, executed by .... and delivered to .... on (insert date), to secure a debt contracted on (insert date).

The total amount of the debt is $..... Payments in the amount of $.... have been made. The duration of the contract is .... months. There is now due and owing without acceleration the sum of $...., the last payment having been made on (insert date).

The employee herein named has been in default in his payments in the amount of $...., of which $.... has been due and owing for more than 40 days.

Unless you have received a written notice from the employee herein named revoking the wage assignment, you are required by law to make payment in accordance with such assignment. ...., first being duly sworn, deposes and says that the facts stated in the demand above are true and correct; and further deposes and says that he (or his principal, if he is an agent for the assignee) has not received notice from the debtor that he or she is revoking the wage assignment.

Payments must be made until the total amount due under the assignment is paid or until the employee revokes the wage assignment............................

Subscribed and sworn to before me on (insert date). ........................... Notary Public".

(740 ILCS 170/2.2) (from Ch. 48, par. 39.2b)

Sec. 2.2. Forms; notice of intent to assign wages; revocation.

(a) The notice to an employee required by Section 2 shall be in the following form: "NOTICE OF INTENT TO ASSIGN WAGES

This notice is required by the Illinois Wage Assignment Act. The notice has been sent to tell you that a creditor (name and address listed below) plans to have your wages assigned. A wage assignment is a document you signed at the time you signed the contract for your debt. It authorizes your creditor to receive a portion of your wages directly from your employer, in order to pay your debt. This notice contains important information about the debt and what your options are. You should read the entire notice carefully. WHY THE CREDITOR WANTS TO ASSIGN YOUR WAGES

You signed a wage assignment on ....... (date) ....... The wage assignment was signed as security if you failed to make payment on the contract you signed on ......... (date) .......... A copy of the wage assignment is attached. The creditor's records show that you have not made a payment since ......... (date) ....... and that you now owe $........ on the contract. The creditor will send a demand for wages to your employer 20 days from the date you receive this.

The creditor's name, address, and phone number are: ...................... ...................... ...................... ...................... (Signed by)"

(b) If the wage assignment is revocable under federal law, the notice required under subsection (a) shall also include the following: UNDERSTANDING YOUR CHOICES UNDER THE ILLINOIS WAGE ASSIGNMENT ACT

There are options available to you in this process. You should consider your options and determine the one that is best for you. You have the right to contact an attorney at any point concerning the wage assignment, or to help you determine your best option.

Your options include:

• (1) You can stop the wage assignment at any time, which will stop your wages from being deducted. It will not eliminate your debt, and interest may continue to accrue. You may contact your creditor for more information about the interest rate on your contract, and to determine how much interest might accrue if you stop the wage assignment.
• Your creditor will still be able to pursue other means of collecting any debt you may owe, including filing a lawsuit against you for the full amount owed under the contract and any interest that might accrue. A lawsuit might result in you owing legal fees and other costs.
• You can stop the wage assignment by filling out the enclosed Revocation Notice Form, or by writing a letter stating that you are revoking the wage assignment. Send the Revocation Notice Form or letter by registered or certified mail to the creditor, at the address listed above. It is highly recommended that you give a copy of the Revocation Notice Form or letter to your employer so your employer can stop any pending payments.
• If you choose to write a letter, it should be addressed to the creditor, and should include:
• (i) your name;
• (ii) the account number; and
• (iii) a statement that you are revoking the wage assignment, such as, "I am revoking the wage assignment."
• Even if the wage assignment has already begun, you can still stop it now or at any point in the future.
• (2) You can do nothing, and allow the wage assignment process to proceed. Starting in 20 days, part of your wages will be sent directly to the creditor to pay off your debt. This will reduce your take-home pay every pay period until the total amount of the debt is repaid.
• Up to 15% of your wages will be sent to the creditor every pay period. Once the total amount is repaid, the creditor will send a notice to you and to your employer that includes the creditor's name, your name, and the account number, stating that the wage assignment is closed and no further wages should be assigned.
• (3) You can contact your creditor to repay the debt, or to explore other options, including a repayment plan or refinancing, if available. You can contact your creditor at the address and phone number listed above.
• If you agree on another repayment option with your creditor, the creditor will send a notice to your employer stating that your wages should not be assigned.

......................

The creditor's name and address are:

Re: (insert account number)

I, (insert name), hereby revoke the wage assignment I signed on (insert date the wage assignment was signed). You no longer have my permission to use this wage assignment.

(Signed by)

(740 ILCS 170/3) (from Ch. 48, par. 39.3)

Sec. 3. No assignment of wages shall become invalid by reason of cessation of employment but shall be valid and collectible against any future employer of the wage-earner within a period of 2 years from the date of its execution.

(Source: Laws 1961, p. 1891.)

(740 ILCS 170/4) (from Ch. 48, par. 39.4)

Sec. 4. The maximum wages, salary, commissions, and bonuses that may be collected by an assignee for any work week shall not exceed the lesser of (1) 15% of such gross amount paid for that week or (2) the amount by which disposable earnings for a week exceed 45 times the Federal Minimum Hourly Wage prescribed by Section 206(a)(1) of Title 29, U.S.C., as amended, or the minimum hourly wage prescribed by Section 4 of the Minimum Wage Law, whichever is greater, in effect at the time the amounts are payable. This provision (and no other) applies irrespective of the place where the compensation was earned or payable and the State where the employee resides. No amounts required by law to be withheld may be taken from the amount collected by the creditor. The term "disposable earnings" means that part of the earnings of any individual remaining after the deduction from those earnings of any amounts required by law to be withheld. If there is more than one assignment demand received by the employer, the assignees shall collect in the order or priority of service of the demand upon the employer, but the total of all collections shall not exceed the amount that could have been collected if there had been one assignment demand.

Benefits and refunds payable by pension or retirement funds or systems, any assets of employees held by those funds or systems, and any moneys an employee is required to contribute to those funds or systems are exempt and are not subject to a wage assignment under this Act.

A fee of $12 for each wage assignment shall be collected by and paid to the employer and the amount so paid shall be credited against the amount of the wage-earner's outstanding debt.

(Source: P.A. 94-305, eff. 7-21-05.)

(740 ILCS 170/4.1) (from Ch. 48, par. 39.4a)

Sec. 4.1. Revocation of wage assignment. If the wage assignment is revocable under federal law, the employee may revoke the wage assignment at any time by submitting the Revocation Notice Form as provided in subsection (c) of Section 2.2 of this Act or otherwise providing written notice of revocation to the creditor. Revocation is effective regardless of how the creditor receives it. Failure to use the sample language provided in the notice described in Section 2.2 does not affect the validity of the written notice of revocation. The employee may submit a copy of the notice to his or her employer. If the written notice of revocation is served upon the creditor prior to the creditor's service of demand upon the employer, the demand shall not be served.

(740 ILCS 170/4.2) (from Ch. 48, par. 39.4b)

Sec. 4.2. If the employee has not served a Revocation Notice Form as provided in Section 4.1 of this Act or has not otherwise served the creditor with a written notice of revocation (if the wage assignment is revocable under federal law) as provided in this Act within 20 days after receiving the notice of intention to make a demand, the creditor may proceed with his demand, and the employer shall commence payment to the creditor not sooner than 5 business days after service of such demand, if no revocation notice has been received by the employer. If the employee cures the default stated in the demand or revokes the wage assignment, the creditor shall notify the employer and release the demand. No employer shall be liable for payments made in compliance with this Section.

If a Revocation Notice Form as set forth in Section 4.1 of this Act or other written notice of revocation from the employee is received by an employer, no wages are subject to a demand served by the creditor for that wage assignment and the employer shall cease any deduction of wages currently taking place for that wage assignment, unless the employer receives a copy of a subsequent written agreement between the creditor and employee authorizing such payments. If such an agreement is not reached, the creditor may not institute further proceedings on the wage assignment.

(740 ILCS 170/4.3) (from Ch. 48, par. 39.4c)

Sec. 4.3. If any person wrongfully: (1) serves a notice on an employee or serves a notice which does not conform with the requirements of Section 2.2, (2) causes a demand to be served for the wages of an employee, or (3) fails to release a demand, he shall be liable to the employee and the employer for statutory damages in the sum of $500 and all actual damages occasioned by such action including reasonable attorney's fees.

(740 ILCS 170/5) (from Ch. 48, par. 39.5)

Sec. 5. A discharge in bankruptcy shall be a valid defense to any suit brought upon a wage assignment executed by the bankrupt prior to the adjudication in bankruptcy; no assignment of wages shall be valid after three years from the date of its execution and shall be void after such period of three years.

(Source: Laws 1935, p. 208.)

(740 ILCS 170/6) (from Ch. 48, par. 39.6)

Sec. 6. Any person who wilfully and wrongfully serves a demand as assignee for wages when no assignment has been made to him or under an assignment which is invalid as provided by this Act knowing such assignment to be invalid with intent to obtain for himself or any other person the wages of an employee, is guilty of a petty offense.

(Source: P.A. 77-2422.)

(740 ILCS 170/7) (from Ch. 48, par. 39.7)

Sec. 7. If any of the provisions of this Act are unconstitutional it is the intent of the General Assembly that so far as possible the remaining provisions of the Act be given effect.

(740 ILCS 170/8) (from Ch. 48, par. 39.8)

Sec. 8. Nothing herein contained shall be construed as making invalid any assignment of wages executed prior to July 1, 1935.

(740 ILCS 170/9) (from Ch. 48, par. 39.10)

Sec. 9. All wages, salary amounts or other compensation paid by the State, any unit of local government or school district to any of its employees are exempt and not subject to collection under a wage assignment.

(Source: P.A. 79-502.)

(740 ILCS 170/10) (from Ch. 48, par. 39.11)

Sec. 10. No employer may discharge or suspend any employee by reason of the fact that his earnings have been subjected to wage demands on his employer for any indebtedness. Any person violating this Section shall be guilty of a Class A misdemeanor.

(740 ILCS 170/11) (from Ch. 48, par. 39.12)

Sec. 11. The provisions of this Act do not apply to orders for withholding of income entered by the court under provisions of The Illinois Public Aid Code, the Illinois Marriage and Dissolution of Marriage Act, the Non-Support of Spouse and Children Act, the Non-Support Punishment Act, the Revised Uniform Reciprocal Enforcement of Support Act, the Illinois Parentage Act of 1984, and the Illinois Parentage Act of 2015 for support of a child or maintenance of a spouse.

(Source: P.A. 99-85, eff. 1-1-16.)

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Overtime Rule: Raise Salaries or Reclassify Employees?

Employers with exempt employees making less than the new minimum salary requirements for exempt workers will need to decide whether to raise salaries or reclassify employees as nonexempt. HR should consider the economic and morale impacts of reclassification.

The overtime rule raises the standard salary threshold in two phases . Workers who do not earn at least $43,888 ($844 a week) as of July 1, 2024, will have to be paid overtime, even if they’re classified as a manager or professional. The salary threshold rises to $58,656 a year ($1,128 a week) as of Jan. 1, 2025. After that, there are automatic increases to the salary threshold every three years.

Nondiscretionary bonuses and incentive payments (including commissions) paid on an annual or more frequent basis may be used to satisfy up to 10 percent of the standard salary level.

To be exempt from overtime under the Fair Labor Standards Act’s (FLSA’s) executive, administrative, and professional (EAP) exemptions—the so-called white-collar exemptions—employees must be paid a salary of at least the threshold amount and  meet certain duties tests . If they are paid less or do not meet the tests, they must be paid 1.5 times their regular hourly rate for hours worked in excess of 40 in a workweek.

To qualify for the highly compensated employee exemption, an employee must be paid a total annual compensation of at least $132,964 (effective July 1, 2024) and then at least $151,164 (effective Jan. 1, 2025), paid on a salary basis. For the highly compensated employee exemption, the exempt worker only has to satisfy one job duty instead of the entire EAP job duties test, said Dena Sokolow, an attorney with Baker Donelson in Tallahassee, Fla.

[Related Resource:  SHRM Annual Conference & Expo 2024 concurrent session  “Wage and Hour Compliance: A DOL Update and Ways to Avoid Common FLSA Overtime Liability Landmines” ]

Economic Impact

“In deciding exempt versus nonexempt classification, HR will want to initially consider the economic impact of classification decisions,” said Laura O’Donnell, an attorney with Haynes Boone in San Antonio and Austin, Texas.

For example, does an impacted employee often work overtime? If so, and the employee is reclassified as nonexempt, the employee’s total compensation would likely increase, she said. “And if the compensation, with overtime, will likely increase, will this increase exceed the new salary minimums?” O’Donnell asked. “If so, increasing the salary may be a better option than reclassification. Conversely, if the employee rarely works overtime, it may make more economic sense to reclassify the employee as nonexempt.”

Whether salaries can be increased to satisfy the new threshold may depend on how close the workers’ pay is to the new threshold, said Rob Boonin, an attorney with Dykema in Ann Arbor, Mich.

Morale Considerations

The analysis should not be limited to economic impact, O’Donnell said.

“Many employees view their exempt classification as recognition that they are performing more sophisticated and important duties than their nonexempt peers,” she said. “Even if their ultimate compensation does not change or even increases, employees may view reclassification as a demotion.”

Overtime eligibility doesn’t necessarily translate into hefty overtime earnings for all newly reclassified employees. Employers might choose to reduce the hours in some positions. Employers would still have to pay for all earned overtime but could discipline workers who worked unapproved overtime, which could further hurt morale.

In addition, businesses might respond to the raised salary threshold for exemptions by conducting layoffs, said Tim Taylor, an attorney with Holland & Knight in Tysons, Va.

Nonexempt employees must record their work time so they can be paid any earned overtime.

“If impacted employees have not previously had to record time, the employees may resent this new requirement,” O’Donnell said. “The cost of negative morale is often difficult to quantify but can lead to many negative consequences such as a loss of productivity, decreased employee engagement, eroding of culture, turnover, and increased HR time addressing concerns.”

Disgruntled employees are more likely to sue. “Therefore, HR will also want to evaluate whether the potential morale impact of converting an exempt employee to nonexempt is worth any potential economic savings,” O’Donnell said.

If a company decides to reclassify exempt employees, HR should think strategically about how to communicate and implement that change to realize the best possible employee experience, she said.

Boonin said some salary compression is inevitable, which may impact those whose pay is above the new threshold. Pay compression occurs when the pay difference between employee levels shrinks so that higher-level workers feel that their pay advantage is no longer significant. Pay compression may require an overall evaluation of an employer’s entire compensation structure, he said.

Salaried Nonexempt Employees

“The ability to retain a salary but reclassify employees as nonexempt could be a useful tool to mitigate the potential morale concerns with converting an exempt employee to nonexempt,” O’Donnell noted.

Nonexempt employees are often thought of as hourly employees, Sokolow said. However, the FLSA does not require that nonexempt employees be paid on an hourly basis. A salaried nonexempt employee is a worker who is paid a fixed salary for all hours worked but is still eligible for overtime pay for any hours worked beyond 40 in a workweek.

The vast majority of nonexempt workers are paid hourly and are not salaried, said David Barron, an attorney with Cozen O’Connor in Houston and Chicago.

“Irrespective of how a nonexempt employee is paid, the employer needs to track the employee’s time and pay the employee overtime, if applicable,” O’Donnell said. “There could still, therefore, be negative employee experiences if a previously exempt employee is suddenly told that the employee needs to start recording time.”

Employers also will need to train reclassified employees and their managers on the ways in which the reclassification could impact work habits, including telling nonexempt workers not to respond to emails if they are not on the clock, said Brett Coburn, an attorney with Alston & Bird in Atlanta.

A California assemblymember has proposed giving workers a right to disconnect in that state, a proposal SHRM opposes. The bill, AB 2751, might restrict the natural flow of work that occasionally necessitates overtime, according to SHRM.

Prepare vs. Wait and See?

Employers should prepare for the first salary-threshold increase on July 1, said Taylor, a former deputy solicitor of labor. “That increase simply adjusts for inflation,” he said.

Employers might want to wait and see over the next few months whether the second, much larger increase planned for Jan. 1, 2025, is likely to occur, he added: “That second increase is legally aggressive, and its fate in court is uncertain.” 

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In a Rare Win for Employers, the California Supreme Court Holds That Wage Statement Penalties Are Not Available if an Employer Acted in Good Faith

In Naranjo v. Spectrum Security Services, Inc., Case No. S279397 (May 6, 2024), the California Supreme Court held that if an employer reasonably and in good faith believed it was providing a complete and accurate wage statement in compliance with the requirements of Labor Code section 226, then the employer has not “knowingly and intentionally” failed to comply with the law. Under these circumstances, the court found, an employee cannot recover penalties under the statute.

Background facts.

The plaintiff, Gustavo Naranjo worked as a security guard for the defendant, Spectrum, and was allegedly fired after leaving his post to take a meal break. In response, Naranjo filed a class action lawsuit asserting wage and hour claims, including an allegation that he was owed meal period premiums and issued incorrect wage statements ( i.e. , paystubs).

Naranjo sought wage statement penalties, claiming his statements were incorrect because they failed to show the meal period premiums that he should have been paid. Under Labor Code section 226(e), an employee can recover up to $4,000 in penalties if there is a “knowing and intentional” failure to comply with the wage statement requirements.

At trial, Naranjo prevailed on his wage statement claim , gaining penalties for himself and the class. This holding was then reversed by the Court of Appeal . Because state appellate and federal district courts had reached varying conclusions when considering when wage statement penalties may be awarded to an employee, the California Supreme Court granted review to resolve the issue.

California Supreme Court’s Decision

The California Supreme Court affirmed the decision from the Court of Appeal, holding that an “employer’s objectively reasonable, good faith belief that it has provided employees with adequate wage statements precludes an award of penalties under section 226, subdivision (e).” The statute states that penalties should only be awarded where there is a “knowing and intentional failure by and employer” to comply with section 226. Accordingly, the court spent most of its opinion exploring what mental state an employer must have in order to commit a wage statement violation.

To answer this question, the court not only looked at the plain text of the law, but also at the statutory context of its penalty provision. When looking at the context of the provision, the court first noted that the purpose of penalties is not to compensate but rather to deter and punish. Thus, those who proceed on a reasonable and good faith belief that they are complying with the law’s requirements (even if that belief ultimately turns out to be mistaken) do not need to be deterred from repeating their mistake.

The second critical contextual consideration noted by the court was the relationship between section 226 and other Labor Code provisions; specifically, Labor Code section 203, which governs when wages must be paid upon termination of employment and permits an award of penalties where an employer “willfully” fails to pay all wages due. The court explained that claims under sections 226 and 203 are typically raised as derivative claims of other Labor Code violations, as was done in this case. In other words, employees will bring a claim alleging their employer failed to pay wages and, on that basis, will also bring claims for a failure to issue correct wage statements under section 226 and a failure to pay those wages upon termination of employment under section 203. Since the sections 226 and 203 claims typically derive from the same underlying failure to pay a certain type of wages, the court reasoned that it made sense to harmonize how penalties should be awarded under both statutes. Under Labor Code section 203, it has long been the rule that employers may only be penalized if they “willfully” fail to pay wages and that a willful violation does not occur if the employer had a good faith belief that the wages were not owed (even if that belief later turned out to be mistaken). In an effort to harmonize the law in this area, the court adopted the same standard for penalty claims brought under Labor Code section 226.

The court also pointed to the legislature’s intent behind section 226’s penalty provision and found there was no suggestion that the legislature intended for the provision to punish those who make a good faith mistake about what the law requires, but only intended to punish those who “deliberately fail[ed] to provide wage information to their employees.” Naranjo raised concerns, stating that excusing employers from section 226 penalties based on good faith mistakes of law will excuse and incentivize ignorance of the law. The court found these concerns unfounded, explaining that since courts already evaluate an employer’s good faith belief under an objective standard of reasonableness, there was little reason to worry that recognizing a good faith defense to section 226 penalties would create adverse incentives for employers. Agreeing with a conclusion earlier reached by the Ninth Circuit in a case involving wage statements, the court stated the defense will not “reward ignorance of the law,” it only means that penalties will be imposed on those who “lack a good excuse” while employers who face genuine legal uncertainty and make “mistakes of law that are reasonable and supported by evidence will be spared.”

Takeaways for Employers

Naranjo is a rare victory for employers before the California Supreme Court. Following Naranjo , employers will no longer be held liable for penalties under Labor Code section 226 for wage statement violations so long as they had an objectively reasonable and good faith belief that their wage statements complied with the law. Notably, however, the state Supreme Court stated several times in its opinion that employees may still obtain injunctive relief and – very significantly – attorneys’ fees if they demonstrate that an employer provided incorrect wage statements, and employers cannot defeat such claims by relying on a good faith belief defense. As such, all employers are encouraged to regularly review their wage statements with experienced labor and employment counsel to best achieve compliance.

[ View source .]

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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News Release

Department of Labor obtains judgment requiring Philadelphia-area home care employer to pay over $1M in overtime back wages, damages, penalties

COLLINGDALE, PA  – The Department of Labor has obtained a consent judgment in federal court that orders a Delaware County home care agency to pay more than $1 million in back wages, liquidated damages and penalties after the department found the employer shortchanged 159 workers of their earned wages. 

The action in the U.S. District Court for the Eastern District of Pennsylvania in Philadelphia follows an investigation of Caring Hearts Health Care Services LLC by the department’s  Wage and Hour Division . Division investigators determined the Collingdale employer did not pay its employees overtime wages for hours over 40 in a workweek, instead paying them the same rate for all hours worked. In addition, the employer failed to accurately record employees’ hours worked. These violations were willful, as shown by an employee handbook stating that non-exempt employees “are entitled to overtime pay as required by applicable federal and state law.” 

“The Wage and Hour Division’s emphasis on rooting out wage theft in the home care industry has found yet another employer taking advantage of workers who provide vital services to people in need,” said Wage and Hour Division District Director James Cain in Philadelphia. “The hard-working people in this industry deserve respect and fair compensation. The Department of Labor is committed to enforcing labor standards to ensure workers receive the highest protections to which they are entitled.” 

The judgment requires Caring Hearts Health Care Services to pay 159 employees $478,294 in back wages and an equal amount in liquidated damages, bars the employer from future  Fair Labor Standards Act  violations and affirms $97,459 in civil penalties the department assessed for the willful nature of the employer’s violations. 

“Employers who deliberately disregard federal regulations must learn the U.S. Department of Labor does not tolerate wage theft,” explained Acting Regional Solicitor Samantha Thomas in Philadelphia. “As the outcome of this case shows, we will use all legal actions to hold employers legally accountable and liable for wages owed and the costly consequences of an equal amount in damages and civil penalties.”

Caring Hearts Health Care Services is a business providing in-home care services for individual, personal needs and necessities. Its services include daily living care, meal arrangement, medication management, dementia care and other medical disability support, and safety supervision. The company serves clients in Philadelphia and Delaware counties.

The FLSA requires that most employees in the U.S. be paid at least the  federal minimum wage  for all hours worked and  overtime pay  at not less than time and one-half their  regular rate of pay  for all hours worked over 40 in a workweek. 

Learn more about the Wage and Hour Division , including a  search tool  to use if you think you may be owed back wages collected by the division. Employers and workers can call the division confidentially with questions, regardless of their immigration status. The division can speak with callers in more than 200 languages through the agency’s toll-free helpline at 866-4US-WAGE (487-9243). Help ensure hours worked and pay are accurate by downloading the department’s Android and iOS  Timesheet App  for free, available in English and Spanish.

Su v. Caring Hearts HealthCare Services, LLC, Edith Walters-Wilson and Cristine Maycole

King County Sets New Precedent with $20.29 Minimum Wage for Large Employers

I n a landmark decision, the Metropolitan King County Council voted decisively 7-2 to raise the minimum wage to $20.29 per hour for businesses with 500 or more employees, setting a new benchmark for labor standards in the region. This significant hike reflects a 25% increase from the current state minimum wage of $16.28 per hour, underlining King County’s commitment to bolster the earning power of its workforce amidst rising living costs.

The move places King County at the forefront of the national conversation on livable wages. The new ordinance is slated to benefit workers of businesses with 500 or more employees starting January 1, 2025, with phased implementation for smaller enterprises until a universal adoption by 2030, with annual adjustments for inflation thereafter.

Reflecting the contentious nature of wage policy debates, the Council witnessed a split vote, with conservative-leaning Council members Pete von Reichbauer and Reagan Dunn in opposition. The enacted wage rates are stratified by business size: medium-sized businesses employing between 15 and 499 workers must pay at least $18.29, while smaller businesses with fewer than 15 employees and annual revenues under $2 million will pay a minimum of $17.29 per hour.

The policy is not without its critics. Business representatives, including those from the restaurant industry, have expressed concerns over potential staff reductions and price hikes as a result of increased labor costs. Amid these discussions, an amendment that would have allowed for tips, gratuities, and employer health care premium expenses to count towards the new minimum wage was voted down 6-2. Furthermore, an amendment to limit the increase to urban areas of unincorporated businesses also failed.

King County now aligns with Seattle, Tukwila, SeaTac, and Renton in exceeding state wage mandates. Seattle’s pioneering $15 minimum wage, implemented in 2013, has incrementally risen to its current $19.97 per hour.

The final amendment, proposed by Councilmember Claudia Balducci, which mandates a report on the overall impact of the minimum wage increase to be submitted by 2028, was also approved unanimously.

Relevant articles:

– King County Council votes to increase minimum wage by 25% , MyNorthwest, 05/15/2024

– King County approves $20 minimum wage for unincorporated areas , Renton Reporter, 05/14/2024

– King County Council to vote on minimum wage increase Tuesday , KOMO News, 05/14/2024

Evansville diner owner must allow employees to participate in federal wage investigation

EVANSVILLE — As part of a court order, Friendship Diner will have to allow a U.S. Department of Labor representative to inform the restaurant's employees of their right to cooperate with federal wage investigators amid a probe into wage theft.

The diner's owner, Bardhyl Shabani, will also have to post the statement for employees in both Spanish and English in the business.

The order was filed in Indiana Southern District Court Monday , in response to the department of labor request in March for a restraining order and injunction against Friendship Diner, LLC and Shabani.

Shabani previously told the Courier & Press he didn't intend to do anything wrong.

"I love all my customers and my employees," he said.

The department's Wage and Hour Division alleges Shabani violated the Fair Labor Standards Act’s anti-retaliation provisions by "harassing and threatening employees in an attempt to coerce them into giving false statements to investigators about the mandatory nature of Friendship Diner’s tip pool."

Previous coverage: U.S. Dept. of Labor: Local diner owes $450K to employees after 'tip-pooling scheme'

The department also asked the court to award punitive damages to employees Shabani coerced, according to a news release from the department.

“The Department of Labor will not tolerate an employer’s attempt to obstruct a federal investigation by retaliating or threatening to retaliate against employees,” stated Regional Solicitor Christine Heri in Chicago. "We will use every available legal resource to protect workers, end such illegal actions and hold employers like Bardhyl Shabani accountable, including seeking punitive damages for those harassed.”

Shabani, as well as anyone acting on behalf of him or the business, are also banned from:

• Discussing the investigation with employees without prior approval from the court;
• Discriminating against employees who cooperate with the investigation by withholding hours or intentionally placing servers in positions to earn fewer tips;
• Retaliating against workers in any manner.

The order also states no employee can be fired for anyone reason within the next two years without a written notice being provided to the Wage and Hour Division of the U.S. Department of Labor at least seven days before.

The investigation began in February when the complaint was filed in federal court seeking back wages for 44 employees of Friendship Diner, LLC.

The complaint is based on findings the diner and Shabani owe $450,140 — $225,070 in back wages and an equal amount in liquidated damages, to the employees, the news release from the Department of Labor states.

The investigation looked at pay records from Feb. 22, 2021 to Feb. 19, 2023, and alleged these violations:

• Operating an illegal tip-sharing pool by requiring servers to return $10 in tips for each weekday shift and $15 in tips for each weekend shift to management. Management kept the servers’ tips or paid bussers' hourly wages;
• Failing to pay all workers the federally required minimum wage of $7.25 per hour;
• Failing to pay overtime at time-and-a-half the regular rate of pay for hours over 40 per week;
• Paying kitchen staff half their wages by payroll check, and half in cash, without combining hours and pay to calculate hours over 40 in a work week for overtime purposes; and
• Failing to keep accurate payroll records.

The other minimum wage, overtime and recordkeeping violations are still making their way through the court system.

Friendship Diner remains open for business on Evansville's East Side.

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Analysis and action on living standards

The Macroeconomic Policy Outlook Q2 2024

13 May 2024

Real wages – measured in terms of the goods that workers can buy with their regular wages – rose by around 2 per cent in the year to February 2024. This is much faster than the average in recent years – real wages did not grow at all in the preceding 16 years. The positive side to this wage growth is that it has protected household incomes, but it may worry the Bank of England because real wages are rising faster than productivity per worker, which actually fell by 0.6 per cent in the year to Q4 2023.

This disconnect can’t go on for ever: productivity is the main determinant of real wages over the long run. But it can go on for a while. Two main tailwinds have made recent real wage growth affordable. First, firms have saved money on pension contributions as higher interest rates have closed the historic deficits in pension funds. Second, global commodity prices have fallen back from the highs of 2022, giving a boost to workers’ real wages by reducing the price of what UK workers buy compared to what they produce.

Overall, the current level of real wages now looks to be affordable, given productivity, taxes and relative prices – although the data are uncertain, the labour share does not look high. But we cannot rely on the tailwinds of the past year to propel future growth. For real wages to keep rising in the long run, we need a return to decent productivity growth.

Real wages have been rising strongly over the past year, while productivity has fallen

Real wages grew by 2 per cent in the year to February 2024 (Figure 1). This is a healthy growth rate – one that would have been respectable even in the pre-2008 days of regular and strong real wage increases. It’s the strongest annual growth rate, outside of the distortions during the pandemic, in over four years.

But while real wages are growing like the good old days, productivity is not. In the 10 years to Q4 2007, output rose at an annualised rate of 1.7 and 2.1 per cent per worker and per hour respectively. In contrast, output per worker actually fell by 0.6 per cent over the four quarters to Q4 2023. This means that what British workers can buy with their wages is rising just as the amount they produce in their jobs is actually shrinking. This mismatch may be worrying the Bank of England, who pay close attention to labour costs.

So how is the country paying these higher wages? And how long can it last?

Figure 1: Real wages are rising and productivity is falling

This ‘decoupling’ between wages and productivity can’t last forever – in the long run, productivity is the dominant driver of wage increases…

In the long run, productivity is the main determinant of wages. Whether we look back over a few centuries of UK data (Figure 2, left panel), or across 138 countries at different levels of development today (Figure 2, right panel), there is a tight link between productivity and wages. Both are about ten-times higher now in the UK than the UK in the mid-19th century, or in Cameroon today. Conversely, the main reason that UK real wages have grown so slowly over the past 16 years is that productivity has also been growing slowly. The level of real wages increased by 2.2 per cent – in total, not per year – in the 16 years to Q4 2023, and the main reason for this is that the level of productivity per worker only rose by 4.2 per cent over the same period.[1]

Figure 2: Productivity drives real wages across countries and over time

… but it’s not the only one: profits, other labour costs and relative prices all play a role, especially in the short term

If workers produce more then, other things equal, they can be paid more. As we have seen, this is the main force driving real wages in the long run. But various factors can drive a meaningful gap between the growth rates of the real consumption wage (the amount of goods an employee can buy with their wage) and productivity for some time.  First of all, employers have to pay non-wage labour costs, like pensions and employers’ National Insurance, on top of wages. [2] Second, the price of what firms sell may diverge from the price of what consumers buy, through, for example, fluctuations in import prices. Finally, firms can pay workers a bigger or smaller slice of overall output – changing the labour share.

If we break down the contributions of these factors to real wage growth, then it is clear that productivity was the main driver of the long pre-GFC period of strong real wage growth (Figure 3). The other factors (e.g. the terms of trade) have weaker trends, if any, or (like the labour share) are inherently bounded. But they can be especially important over the short to medium run, and help to explain why the real consumption wage has been rising strongly over the past year.

Employers have been reducing their pension contributions from recent highs, reducing the wedge between wages and total labour costs

Some employment costs are paid to the government (employers’ National Insurance) or to cover pensions and things like maternity and sick pay, rather than being paid directly to workers. These ‘employer social contributions’ add about 20 per cent to the wage bill (Figure 4, left panel). They have roughly tripled in the past three decades, but have fallen by about 2.5 percentage points since their recent peak in Q3 2020.

One factor driving this rise and fall has been the need for employers to put extra money into Defined Benefit pension schemes in order to plug funding gaps created by low interest rates. As interest rates have risen over the past three years, these pension deficits have closed, and with them the need to make these extra payments. Even though they amount to only around 10 per cent of employer social contributions, they account for much of the fall in the total (Figure 4, right panel).

Figure 4: Employers’ social contributions have been falling from recent highs, driven by reductions in pension deficits

Interest rates will probably not rise further, but it’s possible that the ongoing switch from Defined Benefit to Defined Contribution schemes will permit further falls in pension contributions. Average regular DB and DC contributions are £10k and £2k per head respectively for the 0.7m and 11m active members of each kind of scheme. So, for the sake of illustration, if all active members of DB schemes switch to DC and contributions remain the same, employers will save a further £6bn per year in pension contributions – worth about 0.5 per cent of the wage bill.

But pensions comprise only about a third of non-wage labour costs. Several other factors are also pushing non-wage labour costs, and therefore the wages that employers can afford to pay, in different directions. In particular, employer social contributions are being pushed up by the UK becoming sicker, raising the cost of Statutory Sick Pay, and by the freezing of thresholds for employers’ National Insurance, which raises the effective rate of this tax as nominal wages rise. On the other hand, the fall in the birth rate is slowly reducing the cost of Statutory Maternity Pay, helping lower employer social contributions.

The rebound in the terms of trade has boosted the purchasing power of wages

The price of what consumers buy is different from the price of what their employers sell, so changes in this relative price can create another wedge between productivity and the real consumption wage.

Figure 5: The UK terms of trade have rebounded from the energy price shock

The most well-known reason for such a divergence is international trade, because some UK firms make exports (and so benefit when export prices rise), while UK consumers buy imports. In particular, the surge in the price of imports relative to the price of exports during 2022 – driven by higher prices for the commodities that we, on balance, import – reduced the real consumption wage that firms could pay. This made the country poorer even though UK firms did not necessarily become any less productive. Consistent with this, Figure 5 shows that the terms of trade (i.e. the ratio of export prices to import prices) fell sharply between 2021 and 2023, but have recovered as global energy and food prices have partially normalised (the improvement in the terms of trade in the 12 months to February 2024 was more-than-fully accounted for by import prices, which fell 2.9 per cent, compared to a 0.1 per cent fall in export prices). Moreover, in the long run, the UK’s specialisation in services exports, which tend to rise in price relative to the goods we import, is one reason why there has been an upward trend in the terms of trade over the whole of the period shown in Figure 5.[3]

But the terms of trade are only part of the story.  The price of what consumers buy can differ from the price of what their employers sell for other reasons, including purchases by the public sector and investment (the main two components of final domestic demand other than household consumption), differences in coverage between broad household consumption and CPIH, and taxes on products (like VAT). As a result, the price of whole economy output relative to the CPIH is only weakly related to the terms of trade, and it has actually fallen in recent quarters.[4]

The share of output going to workers is close to recent historical averages

Movements in the terms of trade are to some extent absorbed by firms – importers typically absorb a part of higher import prices in their margins, at least temporarily, while exporters can pocket part of an increase in export prices as higher profits. Similarly, the large pensions deficit reduction contributions might have been seen as ‘one-offs’. In other words, firms sometimes stabilise wages in the face of cost shocks by varying the fraction they pay workers what they produce. This fraction is measured as the labour share.[5] The labour share can vary quite a bit across countries, and over time, due to trends in technology, the composition of the economy within and between sectors, and the relative power of firms in product and labour markets.[6] In many countries, the labour share has fallen in recent decades.[7] It can also vary over the business cycle.

The UK labour share fell sharply in late 2022 and has yet to fully recover, having fluctuated around a reasonably stable trend over the past 20 years (Figure 6). In other words, the recent growth in the real consumption wage has not been paid for by firms paying an excessive fraction of output to workers.

Alternative variants of the labour share similarly are similarly at a normal level.[8]  For example, the same qualitative picture holds if we strip out the sectors like utilities, real estate and health and education which either employ few workers or don’t set prices in the market that feed in to CPIH. However, Figure 6 also shows that the recent decline basically disappears if we index labour compensation to average weekly earnings, which have risen 2.5 per cent faster than national accounts wages and salaries per person in the past two years.[9] This underlines the uncertainty we have about what is going on in the labour market.

Figure 6: The labour share is rising but remains below its recent average

For real wages to keep growing, a return to productivity growth will be key

To the (limited and uncertain) extent that the labour share is now somewhat below normal, there is a bit more room for wages to rise faster than productivity. Moreover, the recent tailwinds from pensions and trade could continue. But – ominously – the level of real weekly wages actually fell on the month in December. And if the labour share rises past normal levels, firms may try to restore profits by raising prices relative to wages. This would set off an inflationary process that the Bank of England would have to respond to, a process that would not ultimately result in higher real wages.[10]

The only way to get wage growth back for good is to fix Britain’s productivity problem. Luckily, we have written an entire book on how to do just that.

[1] Productivity per hour rose a tiny bit faster, at 5.7 per cent. [2] Wages are paid to employees, but output is produced by both employees and the self-employed, and around 11 per cent of total jobs are self-employed jobs. The self-employed don’t earn wages but rather ‘mixed income’, a mixture of wages and profits. Differences in the productivity of self-employed jobs combined with shifts in the share of self-employment can therefore affect the affordable real consumption wage. [3] This is important when we are thinking about the impact of the UK’s services specialisation in international trade. Measured productivity growth tends to be faster in manufacturing than in tradable services, but the price of goods tends to fall relative to that of services. So a country like the UK that specialises in services exports will tend to see real national income rise faster than real GDP, whereas a manufacturing specialist will see the opposite, with GDP growth flattering real income. [4] The real product wage has accordingly risen somewhat relative to the real consumption wage. [5] It’s important to note that the complement to the labour share is not profits, as a business might think of them, but the broader concept of capital income. This includes imputed rents and also has to cover depreciation. What is left for business owners is a small fraction of broad capital income. See J Haskel, What’s driving inflation: wages, profits, or energy prices?, Bank of England, May 2023. [6] See D Autor et al, The Fall of the Labor Share and the Rise of Superstar Firms, Quarterly Journal of Economics 135(2), 2020 and J Castro-Vicenzi and B. Kleinman, Intermediate Input Prices and the Labour Share, unpublished manuscript, 2023. [7] Although when we restrict attention to the corporate sector, it has not fallen in Europe. See G Gutierrez and S. Piton, Revisiting the Global Decline of the (Non-Housing) Labour Share, American Economic Review: Insights, vol. 2, no. 3, pp. 321-38, , 2020. [8] See this tweet thread by Josh Martin, Bank of England. [9] The flip side of this is the large contribution from the AWE-wages and salaries wedge in Figure 3. [10] See, for example, R Rowthorn, The Conflict Theory of Inflation Revisited, Review of Political Economy, 1–12, 2024 and G Lorenzoni and I Werning, Inflation is conflict, National Bureau of Economic Research Working Paper 31099, 2023.

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Nashville mayor pushing to raise minimum wage to $20 per hour for Metro employees

Currently, the lowest wage for a full-time Metro employee is $18.50, according to the mayor’s office.

NASHVILLE, Tenn. (WSMV) - Mayor Freddie O’Connell is recommending a minimum wage increase to $20 per hour for all full-time employees within Metro government.

The mayor has the increase in his recommended budget for Fiscal Year 2025, which has been sent to Metro Council.

“The federal minimum wage now at $7.25/hour-hasn’t changed in 15 years. But we know the cost of living in Nashville has. And we’re trying to make sure that we’re making progress toward paying everyone in Metro a living wage. With this year’s budget recommendation, we’re increasing the lowest hourly rate for full-time government employees in the city to $20/hour,” O’Connell said during the State of Metro address on Tuesday.

“I understand where he’s coming from with wanting to increase the minimum wage. I think people who live here want to be able to stay in Davidson County,” Nashville resident, Malain McCormick said.

Bill Burnett, who is a lifelong Nashvillian, is still working into his 70′s. He wishes a higher wage was available to all working people, not just those in local government.

“I’m against it, it needs to go to the private industry” Burnett said. “Government employees get so many retirement programs, this, that and the other, holidays, the working man doesn’t get those.”

Metro Council will review and vote on the mayor’s budget over the next month. If the council passes the budget, it would go into effect in July.

Copyright 2024 WSMV. All rights reserved.

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Should you give job applicants an assignment during the interview process? Be thoughtful about the ask

Hiring is a time-consuming and expensive endeavor. Companies need candidates who offer the right skills and experience for a given role, and who align with their organization’s vision and mission.

To find the best fit, many companies still lean on a strategy that continues to generate debate : the assignment. Some candidates believe their experience and interviews should give prospective employers enough information to determine whether they will fit the role. Employers have to ask themselves whether they are willing to turn off a strong candidate by asking them to do additional work.

Is the assignment valuable enough to the evaluation process that they cannot move someone forward without it? Sometimes it is—sometimes they help an employer decide between two strong candidates. And if they are necessary, how can employers make assignments fair and equitable for the candidate or candidates?

When done right, assignments help assess practical skills and problem-solving abilities, giving a clearer picture of a candidate beyond what their resume or interview reveals. But employers should be thoughtful about the ask. While it may make sense for roles that require specific technical expertise or creative thinking, it isn’t appropriate for all roles—so assignments should always be given with a clear reason for why they are needed.

Plus, they don’t just benefit the employer. For job seekers, an assignment during the interview process might also help them stand out from the competition. It can also offer a window into what their day-to-day in the new role might entail. Remember that the candidate should be interviewing the company, too. Having a test run of the work they’d be asked to do is a great way to see whether they believe the role is a fit.

However, there is a rift in how people perceive the assignment as part of the interview process. Workers today span many generations, each with unique values and expectations. Whereas older workers often prioritize stability and loyalty, younger millennials and Gen Zers are more focused on flexibility and work well-being, Indeed data shows .

This mindset impacts the amount of time and energy a candidate is willing to devote to each application. After multiple rounds of interviews and prep, taking on an in-depth assignment may feel like a bridge too far—especially if the expectations for the assignment are not clearly communicated ahead of time.

Some candidates are wary of providing free labor to a company that may use their work and not hire them. Hiring managers should be clear about how the work will be used. They may also consider offering compensation if the assignment requires more than a couple hours of someone’s time, or if they plan to use the work without hiring the candidate.

The key for early career candidates in particular is to ensure their time and efforts are respected. This is a win-win for employers: By providing clarity and transparency, they not only elicit the additional information they want from candidates, but they demonstrate that the organization is transparent and fair.

Equity is also imperative: Which candidates are being asked to complete assignments? Is the hiring team consistent in giving out assignments across ages, experience levels, and roles? There should always be a process and clear evaluation criteria in place to ensure fairness.

As we adapt to the rapidly evolving world of work, we must continue to think critically about each step in the hiring process. Candidate assignments can be a valuable tool, but only with appropriate respect for job seekers’ time and contributions.

With the right strategy, we can bridge the gap between generations in the workplace and build a hiring culture that values efficiency, talent, and integrity.

Eoin Driver is the global vice president of talent at Indeed.

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The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of  Fortune .

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