By Michael Fagan
Employers can’t control how their employees manage (or in some cases, don’t manage) their personal finances. For those that have debts they can’t satisfy, they often face creditor attempts to garnish their wages. If it comes to this, the employer has no choice but to comply when the valid garnishment is received. The laws regarding who gets paid first – referred to as priorities – can be difficult to navigate. This post provides some basic guidelines for how to get those priorities straight.
Understanding the federal guidelines is a must! State laws vary too much to delve into them in detail, however, it is always helpful to understand the basics.
Let’s start with the general rule: “First in time, first in right” applies. That means the first garnishment received gets paid first and is given the highest priority. Those that follow must wait their turn until the first one received is paid in full. As with many areas of law, there are exceptions to the general rule.
The order of priorities is governed by state law and federal tax and bankruptcy laws. A common state trend is to give priority to support obligations with current obligations paid before delinquent support obligations. When there aren’t enough funds to satisfy all support obligations with regard to one individual (for example, one individual may have alimony, child support and medical support obligations from a single divorce), states will often distribute the funds pro rata among the various support obligations to that individual.
When it comes to commercial garnishments, state treatment varies. In some, the time priority system is used, where the order first received by the employer or entered first by the court takes priority (check your state’s law). In others, multiple nonsupport garnishments are distributed pro rata; those states often provide a formula to assist in calculating the amount to distribute.
Let’s take the state of California for example…
California law provides a good example to review these principles. California follows the majority trend of giving support obligations priority over nonsupport obligations, and giving current obligations priority over delinquent ones. Among nonsupport obligations, state tax garnishments are given first priority. Only then does the first in time rule apply, with the date that the employer received the garnishment controlling. If the dates are the same, the order that was first entered takes priority.
In California, if a nonsupport garnishment is received while another is being paid, the second order is ineffective. However, the order can be re-served, and if at a time when the prior garnishment has been satisfied, the re-served order may begin to be paid, subject to the other priority rules. In addition, if an existing garnishment is supplanted by a higher priority garnishment, and wages are not withheld for two consecutive years from the date the order was subordinated, it becomes ineffective and no funds may be withheld.
You can see from this one state demonstration that garnishment priority law can be quite complex. Legal counsel should be consulted to assure compliance. The penalties for noncompliance can be costly, especially if an employer processes a large number of garnishments.