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Wage and Hour

Employee Wage Deductions

Employee Wage Deductions

By Walter J. Liszka of Wessels Sherman Joerg Liszka Laverty Seneczko P.C. posted in Wage and Hour on Wednesday, November 19, 2014.

In a rare and somewhat unexpected action, the Illinois Department of Labor, which is not perceived as an “employer-friendly agency,” recently amended the requirements that are imposed on employers when making deductions from employee wages.

Under the prior requirements of the Illinois Wage Payment and Collection Act, there were extremely limited circumstances under which unilateral deductions from employee wages or final compensation could be made. Under the provisions of Section 9 of that Act (820 ILCS 115/9), employers were permitted to deduct from wages or final compensation only the following:


1. As required by law (i.e., Federal and/or State Taxes or Medicare/Medicaid requirements).

2. Deductions for the benefit of an employee (i.e., 401(k) contributions or healthcare contributions).

3. Deductions made in response to a valid wage assignment or wage deduction order.

4. Deductions made from an employee’s check with written consent by the employee given freely at the time a deduction is made.


Simply stated, under the above requirements, if the employer and employee had agreed to a payroll advance, the employer was legally entitled to make a deduction from the employee’s pay only if the employee gave their written consent at the time of each and every deduction even if these were to reoccur over several pay periods.


Under the new rule, which became effective August 22, 2014, employee consent requirements have been modified to recognize that employers and employees may enter into a written agreement in advance of making the deduction, permitting that deductions will occur over a period of time.
To take advantage of this new rule, the following must be followed:


1. The employer and employee must be entered into a written agreement authorizing the deduction over a recurring series of deductions over time.

2. The written document must provide, over the period of time during which the deductions will be made, very specific dates (time frame in which the deductions will occur).

3. The periodic deduction must be for the same amount for each pay period.

4. The written authorization must contain a statement that the individual employee may voluntarily withdraw his or her authorization to make the deduction and that this withdrawal should be in writing.


Although not required, it is the suggestion of the author that this written agreement authorizing the deductions be executed in duplicate original copies with one (1) original to be retained by the employer and the other original to be retained by the individual employee.


Employers should also take note that even with this new rule authorizing a written document permitting this type of deduction, no deduction can take place if the deduction would allow an employee’s actual received wages to be less than the minimum wage for a particular pay period and, in addition, employers should ensure that deductions do not exceed fifteen percent (15%) of the employee’s gross wages for the pay period or final compensation because this would create a potential conflict with the Federal Consumer Credit Protection Act.


Surprising as it may seem, the Illinois Department of Labor has finally “scored one” on behalf of the employer! 

Questions? Contact Walter J. Liszka in the Chicago office at waliszka@wesselssherman.com or by phone at (312) 629-9300.

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Other

Employee Debt – The Bane of Employers

Employee Debt – The Bane of Employers

By Walter J. Liszka of Wessels Sherman Joerg Liszka Laverty Seneczko P.C. posted in Other on Saturday, November 15, 2014.

While most of us believe that the “Great Recession” is finally at an end, millions of Americans are still experiencing the pressures of employee debt. Every state in the United States has legislation creating the opportunity for an organization to “legally collect the financial obligations owed by an employee through our legal system” (for example, in the State of Illinois, Collection of Child Support – 750 ILCS 28/50, et seq.; Wage Assignment Act – 740 ILCS 170/01, et seq.; and Wage Garnishment – 735 ILCS 5/12-701, et seq.). In point of fact, there is a tremendous increase in the number of garnishments (legal recovery of a debt through the seizure of an employee’s pay) that has been on a drastic increase. It is estimated that in calendar 2013, close to 10% of the workers in the continental United States have had their wages garnished and the highest rate of garnishment covers employees between the ages of 30-50, the peak years of child rearing, divorce, and debt load. Garnishments are filed for all possible debts, the two (2) highest being child support and student debt and “other debt” (i.e., credit cards, mortgages, etc.).
Employers are caught in the middle with their obligations to ensure that employees are paid correctly under all wage payment laws (i.e., Fair Labor Standards Act, Illinois Wage Payment and Collection Act, etc.) and the employer’s obligations to creditors under garnishment proceedings/requirements. Every employer must be aware of garnishment proceedings/requirements and take appropriate action to protect itself from being enmeshed in these problems. Here are a few of the very important things every employer must do:
1. If an employer receives a garnishment, that garnishment is issued through a court proceeding. Even if an employer believes that it has no obligation to collect on the garnishment (i.e., the involved employee no longer works for the employer), the employer must still file an answer to that garnishment and explain the reason or circumstances as to why the garnishment will not be processed by the employer and no moneys deducted and sent to the Court. If an employer does not file an answer to each and every garnishment, it is possible that the employee’s debt will become the debt of the employer through the entry of a default judgment.
2. Garnishments come in all types of varieties – single payment or continuing payment. Learn what the garnishment is – single payment or continuing payment. For a single payment, the employer is responsible to deduct the amount indicated in the court order and that is the end of the employer’s responsibility. For a continuing garnishment, these can run for a period of time, in some cases, for 180 calendar days, and require continuing multiple deductions from pay and multiple court filings.
3. The Consumer Credit Protection Act and many other state laws prohibit employers from discharging an employee based on a single garnishment or from multiple garnishments for a single indebtedness. It is an absolute necessity for the involved employer to know the state law requirements and comply with them.
4. For certain indebtedness that is the underlying basis for the garnishment, the “disposable earnings” (wages minus legally required withholdings) may be subject to a different deduction limitation. In most garnishments, the “disposable earnings” subject to deduction in a work week or pay period will be the lesser of 25% of the “disposable earnings” or the amount by which “disposable earnings” exceed thirty (30) times of the required minimum wage. On the other hand, for cases of child support or alimony back payments, 50% of the employee’s “disposable earnings” may be garnished. It is extremely important to know what the indebtedness is to determine the percentage of “disposable earnings” subject to garnishment.
5. Have a specific procedure handled by specific people who are responsible for dealing with the garnishments and are knowledgeable as to how to deal with them. Have a specific procedure and training in place to notify managers or supervisors that garnishments should be sent to an identified person. Do not allow garnishments to linger in someone’s inbox – that type of action will cause a lot of unnecessary problems, including the possibility that the “employee’s debt” will become the “debt of the employer!”

Questions? Contact Walter J. Liszka at the Chicago office at waliszka@wesselssherman.com  or by phone at (312) 629-9300. 

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