Can an Employee be Paid in Cash to Avoid Wage Garnishment?
An employer served with an order to garnish an employee’s wages may contemplate the notion of paying the employee cash to avoid it. This may come to mind because the employee suggests it, or because the employer wants to help the employee avoid the difficult process of debt collection.
Dash the thought. Wage garnishment is a valid legal process recognized under federal and state law. Under no circumstances can a valid wage garnishment order or tax levy on wages be skirted by alternative payment in cash or off-book compensation, without risking serious financial and legal consequences to the employer.
Form or Manner of Payment/Garnishment
On many occasions, wage garnishment arrives in the employer’s hands as an order from a state court for such debts as unpaid child and spousal support, medical bills and consumer debt. Upon receipt of the order, the employer has a legal obligation to garnish, i.e., withhold, a certain portion of the employee’s wages in strict accordance with federal and state law. The amount withheld must be paid directly to the creditor or the designated party in a timely fashion.
By federal law, garnishment orders – and limitations on garnishment – apply to every form of employer-employee compensation, including regular wages, salaries, commissions, bonuses, and other all other forms of income. It does not matter the manner in which the wages are paid, whether by pay check, direct deposit into a bank account or debit card, or cash. If the employee’s wages originate from or pass through the employer’s hands, the amount required by law must be garnished.
Inapplicable to Tips and Gratuities Paid in Cash
Federal law carves out a specific safe harbor for bona fide cash tips and cash gratuities paid to or for the benefit of the employee. The garnishment procedure is only intended to reach monies held by the employer for payment to the employee. Cash tips and gratuities fall outside those parameters.
For example, a bar served with a wage garnishment order for child support for one of its bartenders must withhold the lawful amount from the bartender’s regular pay check, and usually pay that amount directly to the other spouse. The bar has no right or obligation to touch the bartender’s tip jar or gratuity money, including non-cash tips left on a credit or debit card.
The only instance where tips and gratuities must still be garnished is where they are charged automatically, as in the form of flat 15% service fee (even though it might be described as a gratuity). The charge being automatic, there is no bona fide tip. Whether service charges are paid in cash or not, the employer must include them in calculating the amount withheld for garnishment.
Employer’s Response to Garnishment Order
The employer’s response to a garnishment must be compliance, not cash avoidance. Federal and state law sets forth the formula and manner of withholding the garnished amount and paying it over. Paying the employee in cash and thereby avoiding the order is not one of those options. There are no exceptions, in other words, by simply paying cash.
Consequences for Non-Compliance
The consequences to the employer for non-compliance are serious. When the garnishment arrives in the form of a court order, willful non-compliance or circumvention is a violation of the court order. As in the willful violation of any valid court order, civil and criminal contempt are options available to the court, including an award of damages and/or the imposition of fines and jail time.
As an alternative to the court’s inherent contempt power, federal law expressly empowers the court to impose penalties and sanctions on employers who fail or refuse to comply in timely fashion with valid garnishments. Willful violations may result in criminal prosecution with fines up to $1,000 or imprisonment for not more than one year, or both.
Avoidance of a valid garnishment is no trifling matter, especially if paying cash under the table becomes a serious consideration. Employers are well-advised to institute clear procedures for compliance with wage garnishment orders, as they are very commonly used to collect unpaid child support. Engaging experienced labor law and/or debtor-creditor legal counsel is a wise and cautious move, as soon as any questions – such as paying cash under the table – arise in the compliance process.