Navigating Wage Garnishments Morris Salinas Business Consultant, Added Value Services ADP, Inc

Navigating Wage Garnishments

Morris Salinas

Business Consultant, Added Value ServicesADP, Inc.

About ADP

Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc.2

Revenues of approximately $10 Billion Market capitalization of >$23 Billion

Over 600,000 clients worldwide

Top-rated company by Standard & Poor’s & Moody’s

Pays 1 out of 6 in the U.S. – 33M worldwide

Processing wage garnishments since 1997

45,000 Associates

In 60+ Countries

Electronically movingover $1 Trillion annually

One of the world’s leading providers of technology-based SaaS solutions to employers

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Agenda

Wage Withholding Basics

Types of Garnishments

Wage Garnishments on the Rise

Regulatory and Compliance Updates

The Future

Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc.

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Wage Withholding Basics

When a debt is owed, a wage withholding order can be issued, requiring an employer to withhold and pay the wages of the employee

Knowing which laws to apply, rules, regulations is difficult for employers

Employers can be 100% liable if garnishment is processed incorrectly!

Denial or revocation of licenses and passports for delinquent child support obligors

– Driver, professional, or hunting licenses


5 Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc.

Types of Garnishments

Garnishment (most complex to process)

– Creditor

– Varying state / court requirements

– Response / answer requirements

Bankruptcy

Wage Assignments

– Voluntary

– Governed by state laws

– Employers choice to honor


More Garnishments

Student loans

– Federal Debt Collection Improvement Act

– State Higher Education Act

Tax levy

– Federal, state, or local

– Notification requirements

– Voluntary payment plan

Child support (largest volume received)

– Medical support

– Lump sum payments

– Varying state laws

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Garnishments Processing is Constantly Evolving

All states require “unable to deduct”, “unable to locate” and “EE Term” notification for all creditor, child support and tax levies

Over 90% of states require a response and a final answer for creditor liens

Timing of notification requirements has become stringent

More than 30 states ADOPT electronic income withholding order processing (e-IWO)

16 states MANDATE Electronic Funds Transfer / Electronic Data Interchange (EFT/EDI)

Fines and penalties for incorrect calculations, not paid on time/tothe correct party, or deducted based on documents that are not legal

Employers failing to withhold amount specified are liable for the full amount of the support owed, plus a fine

Employers must ensure business continuity, even in the event of a “disaster”

In the U.S., 1 out of 10 employees has a wage garnishment

Employees being garnished are more likely to have multiple orders

Garnishment orders are on the rise some 10% on average year over year


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In Fact. . .


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Regulatory and Compliance Updates & Trends

Bankruptcy Reform

Child Support Trends

– New Federal Income Withholding Order

– Electronic Income Withholding Order (e-IWO)

– Electronic Payments

– Medical Support

– Fees

Wage Garnishment Trends


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Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA)

Reform became effective October 17, 2005

– Strict requirements and audit procedures

– Increased filing fees

– Extended payment plan to five years

The American Bankruptcy Institute reports that 1.2 million bankruptcies filed in FY2012 (ending June 30, 2012)

Sources: http://www.cch.com/bankruptcy/Bankruptcy_04-21.pdfhttp://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&CONTENTID=66471&TEMPLATE=/CM/ContentDisplay.cfm



Child Support, You Make a Difference!

Payments disbursed via EFT, check, or direct deposit

Costs $5.9 billion to collect child support

72% of all monies collected by employers

New Hire Reporting helps child support – 52 million employees were reported to new hire agencies in FY12 (55 million in FY13

Other Source 17% ($5.3 billion)

Income Withholding 72% ($22.9 billion)

Federal Tax Offset7% ($2.2 billion)

Unemployment Intercept Offset4% ($1.2 billion)

State Tax Offset 1% ($216 million)

Source: http://www.acf.hhs.gov/programs/css/resource/fy2012-preliminary-report

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Federal Income Withholding Order (IWO)

Applies to all child support IWOs issued on or after 05/31/11 (i.e., new IWOs)

Standard “Remittance Identifier” to use when sending payments

Must direct payments to the SDU as required by Federal law [section 454B of the Act]

– Employer should reject the IWO and return it to the sender, effective immediately

Must be on the approved IWO form as required by Federal law (section 466(a)(8) and 466(b)(6)(A)(ii) of the Act)

– Employer should reject the document and return it to the sender, effective 05/31/12

There is a new form for 2014


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e-IWO (Electronic Income Withholding Order)

Electronic transmittal of child support orders from participating states/tribes/territories through a central portal to participating employers or service providers

The Office of Child Support Enforcement (OCSE) hosts the central portal

Applies to child support orders filed through the state child support agencies

States are encouraged to participate, however not federally mandated to adopt e-IWO today

Currently 31 states are in production


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e-IWO Process


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e-IWO State Status


Developing e-IWO Using e-IWO Not using e-IWO

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With e-IWO, You May Experience…

Faster Turnaround Time for Processing Orders

Increased Security of Confidential Data

Increased

Accuracy

Payments Disbursed Faster

Reduction in Calls for Case / Order Status


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Electronic Funds Transfer Mandates

States are required to allow employers to remit payments via EFT or check

16 states and territories mandated electronic funds transfer (EFT) for child support

– CA, FL, IA, IL, IN, MA, NE, ND, NV, OH, OR, PA, TX, VA,WV, Guam

EFT allows for a more efficient payment process


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EFT State Status


Has passed legislation or regulations requiring employers to remit their child support payments electronically

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Garnishment Payments

Agencies are looking to improve processes with electronic payments

EFT Payments are fast and efficient, looking into the following:

– Tax Levy Agencies

– Trustees

– Student Loan Agencies

Effective in late 2013, PR changed their Court Rules to allow them to accept payments at the courts that were not a cashiers check or money order


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Medical Support Orders

National Medical Support Order created due to Deficit Reduction Act (DRA) of 2005

Can be sent to the custodial parents employer or the non custodial parents employer

Can direct employers to enroll the child in health insurance

Calculation may be complex for employers

Requires new medical information “Answers” or “Responses”

Civil penalties may apply for noncompliance


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Employer Fees

Employers can charge a fee for processing wage withholding payments to assist in offsetting the administrative costs

Vary by state and lien type

– Child Support

– Creditor garnishments


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Additional Changes for Child Support

New form will be published in 2014

Return the order if not on the approved form

Changes to the IWO may result in changes to the E-IWO

Continued Focus on Medical Support Establishment

Federal Income Withholding Order (IWO)

New Legislations and Mandates

Calculation can be complex for employers

Lump Sum Payments E-Termination reporting


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Additional Changes on the Horizon

Health Care Reform

May cause more changes

Verification of Employments

(VOE) Increased volume Focus on

standardization

New Hire Reporting

Identifying those employers that are not reporting their newly hired employees

Electronic Payments

Child support Tax levies Student Loan

agencies


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You Want To . . .


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What Is The True Cost Of Garnishment Processing


Cost Categories Direct & Indirect Costs

Capital and Labor Costs

Operational Costs

Hidden Costs

Opportunity Costs

Management / FTE Training Servers / storage Equipment, data centers

Calls (often emotional) Bank fees (checks, wires,

EFT, stop/void) Mailing / postage

Judicial settlements Software updates Legal, counsel Accounts payable

Focus on core competencies

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Risk Has Shifted to the Employer…



Utilize technology such as e-IWO (electronic income withholding orders) to increase efficiency and accuracy

Wage garnishment collections risk has shifted to employers

State disbursement units have mandated Automated Clearing House (ACH) payments

Agency fines are on the rise for non-compliance

Leverage human capital / eliminate transactional costs

Catastrophic Backup

Why Companies Outsource Wage Garnishments

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It is Critical to Stay Up to Date in The Regulatory Environment

Participating With State and Federal Agencies on Pilot Programs and

Initiatives Helps Employers

Communication With Agencies and Courts

Legislation Monitoring is Critical

Lobbying Efforts

Must Have Tools, Resources and

Contacts for All the Liens You Process

Conference Attendance and Participation Helps

Keep Employers Up to Date


Thank You for Attending

Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc.29

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Navigating Wage Garnishments Morris Salinas Business Consultant, Added Value Services ADP, Inc