The state of New York calls its wage garnishment process “Income Execution." Though states are free to provide greater protections for their resident debtors, like many states across America, New York has chosen to follow the guidelines set forth by the Federal Wage Garnishment Law as to how much can be garnished from any one paycheck. Let’s take a look at the “Income Execution" process and how it works in New York.
Situations to Which Wage Garnishment Applies
Wages are the monetary compensation a full-time or part-time employee earns from his employment relationship with his employer. This includes salaried employees and hourly wage-earners alike, and generally reaches anyone who fills out a W-2. However, the job landscape has changed over the years, and with the advent of modern technology, particularly the internet, today we have more independent contractors and freelancers than ever before. Federal wage and hour laws, which include federal limitations on wage garnishment, do not reach these non-employee workers. In other words, you cannot garnish the earnings of a non-employee, nor can they currently invoke the protections of federal wage garnishment law.
If you are an employee, your earnings can be attached through the wage garnishment – or in New York, the income execution – process. This means a sum certain can be taken directly out of your paycheck by the employer and paid over to the creditor who asserts a debt against you the employee. The paycheck you receive as an employee is net left over after garnishment – in other words, substantially less than your normal check. However, as stated above, a creditor cannot garnish the income of an independent contractor or freelancer. How an employer structures its work force – with a base of employees or independent contractors or a mix of both – thus has important consequences on whether a wage garnishment or income execution process may be used.
The Wage Garnishment Process
Wage garnishment typically begins with the filing of a lawsuit by a creditor against the alleged debtor. The creditor of course can be anyone — a credit card company, a financial institution, an educational lender, a pay-day loan company, an automotive finance company, a consumer retailer, a business partner, a spouse, tax authorities, a government entity, or anyone or any entity to which the employee owes money.
If the debt is owed, and the debtor has no valid defenses to the claimed debt, the creditor will proceed through the procedural steps of the lawsuit until it obtains a money judgement for the amount of the debt owed. Once the judgement is obtained in a specific amount, the judgment can be converted into a wage garnishment – or income execution – order, by a simple application to the court that issued the judgement.
Garnishment simply means the employee’s wages are partly paid over directly to the creditor in the maximum amount allowed by federal or state law. The employee is then paid what remains. The process continues each paycheck until the debt is paid off or the employment relationship ends. The order, in other words, is continuous and need not need to be renewed by the creditor each pay period.
To be sure, the language of the applicable federal and state laws typically does not speak in terms of “paycheck" or “wages." The magic phrase in wage garnishment or income execution law is “disposable earnings." Technically, “earnings" include any form of W-2-based income — regular hourly wages, executive monthly salaries, payment for piecemeal work, commission-based fees that result from sales, incentive bonuses, pension monies, retirement funds, and the like. Essentially, any compensation that does not fit into the independent contractor or freelancer categories qualifies as garnish-able wages.
“Disposable earnings" are always less than gross earnings, because these are the wages remaining after subtraction of all legally-allowed deductions. These deductions include amounts withheld for federal income taxes, social security, and a host of state, county and city taxes, as well as certain other “involuntary" deductions like union dues. The precise particulars are set forth in the federal statute that defines “disposable earnings." In the end, the amount of the “disposable earnings" is what the federal guidelines use to determine the maximum amount of wages that can be garnished in any one pay period or paycheck.
Federal Limits on New York Income Executions
If we take a step back, we see there are numerous federal and state laws governing wage garnishment. Some states choose to provide greater protections to their residents than the federal law requires; others do not. New York is among the later, and generally speaking, it defers to and relies upon the federal law protections which are not insignificant.
As a public policy matter, federal law seeks to ensure that wage garnishments of employee “disposable earnings" do not subject employees and their families to unnecessary hardship. Allowing an overzealous creditor to put someone on the street for defaulting on a consumer loan to buy a refrigerator on revolving credit is not something that society generally wants. To prevent such hardship, federal law imposes limitations on how much of an employee’s paycheck a creditor can take. These limits are often described as the “25-30 Rule."
The “25-30" rule works this way:
Under the 25 Rule, the wage garnishment order cannot take more twenty-five percent (25%) of the employee’s “disposable earnings," i.e., total wages after allowable deductions. That’s why the deductions are important to creditor and debtor alike, as they figure intrinsically into the calculation of wages that can be garnished. Note that voluntary deductions like insurance premiums typically cannot be inserted into the mix to lower the “disposable earnings" amount.
The 30 Rule, by contrast, provides that the wage garnishment order can only take amounts over 30 times the federal minimum wage. Since July 2009, the federal minimum wage has been $7.25 per hour for employees with medical insurance premiums being automatically taken out of their paycheck, and $8.25 for employees without such premiums being automatically taken out.
To these Rules there is a kicker: A wage garnishment cannot exceed the lesser of the two. This ensures the employee is always taking home the greater amount of wages available under these calculations.
Garnishing Wages Without a Judgment
Most creditors to garnish wages must first file a lawsuit and obtain a Money Judgment, which makes them technically a “Judgment Creditor." However, for public policy reasons, there are a host of exceptions to this rule that allow an employee’s wages to be garnished without the cumbersome process of filing a lawsuit and obtaining a money Judgment.
Here is a non-exclusive list of debts that can result in wage garnishment without first obtaining a Money Judgment:
- Past due child support.
- Delinquent alimony or spousal support.
- Government fines (federal and New York).
- Income taxes arrearages at the federal or state level.
- Property taxes due at the state level.
- Defaulted student loans.
There are others, of course, so it is important to do your research depending on the particular debt asserted, as it may or may not require a prerequisite Money Judgment.
Special Treatment for Child Support and Alimony
It is worth noting that, for over 30 years, court orders for child support and alimony (or spousal support) have generally included an automatic component for wage garnishment. So when it comes to these family-based debts, garnishment is now routine, and that is also why many accounting and bookkeeping departments are intimately familiar with the non-Judgement Creditor wage garnishment process, as no independent wage garnishment order need be obtained (the child support award is served on the employer with appropriate instructions, making a wage garnishment order unnecessary).
For current support obligations, as with consumer debts, federal law limits the amount garnished to the previously-discussed “25-30 Rule." However, where support payments are past due, that is a different story. For past due support, up to 60% of wages can be garnished unless another dependent is being supported, in which case the maximum is 50%. And if the debtor is in arrears more than twelve (12) weeks, an additional five percent (5%) can be tacked on. This means that, in the more severe cases, as much as sixty-five percent (65%) of that employee’s “disposable earnings" can be garnished for support.
Debts Receiving Special Treatment in New York
Though each state differs due to local concerns, New York has a long list of so-called “Exempt Debts" for which a wage garnishment, income execution, or levy of any kind cannot issue. Some of these are as follows:
- VA Benefits
- Unemployment Insurance Benefits
- SSI or Supplemental Security Income
- Social Security Benefits
- Welfare or Public Assistance
- Benefits for Disability
- Worker’s Compensation Payments
- Certain Pensions, Public and Private
- 90% of your wages or salary earned in the last 60 days
- Railroad and Black Lung benefits
Thus, if any of these are paid in whole or part by an employer, the wage garnishment or income execution process cannot be used to reach them. All the debtor must do, if faced with this situation, is obtain a free form from the Court called an “Exemption Claim Form."
Special Rules for Bankruptcy and Federal IRS Tax Debts
The normal limitations on the amount that can be garnished under the “25-30 Rule" do not apply in certain other situations as well. Two noteworthy examples are Bankruptcy and IRS Tax Debts.
- The Court in Chapter 7 bankruptcy proceedings, or trustee in a Chapter 13 reorganization matter, theoretically could reach as much as ninety percent (90%) of an employee’s “disposable earnings." As a practical matter, this normally happens however only when the debtor so agrees as part of a repayment plan. Otherwise hardship factors mitigate against it.
- Theoretically the IRS can garnish as much as seventy percent (70%) of an employee’s wages. A complicated formula is involved, however, and hardship to the taxpayer-debtor-employee is a material factor weighed in calculating what the employee needs to meet his and his family’s essential living needs.
Determining Priority with Multiple Income Executions
When the debtor-employee faces multiple garnishment orders simultaneously – multiple child support obligations, unpaid federal or state taxes, defaulted school loans – the employer must prioritize the incoming garnishment orders as they exist within the overall hierarchy of the garnishment process. Generally, the order of priority is as follows:
- Past due child support (it always comes first),
- Then past due federal income taxes,
- Followed by defaulted student loans,
- Bankruptcy payments, and lastly,
- State levies for whatever reason (taxes, fines, the like).
The point being, all of the aforesaid precede the more routine consumer debts, credit cards, pay day loans, even medical liens, and it is the type of debt, not the timing or order of garnishment, that controls the priority given.
Job Protection in New York in the Wage Garnishment Process
It’s a hassle and administrative burden for employers to process garnishments. As a result, employers (especially smaller ones) can be tempted to take the easier solution of simply terminating and replacing the employee with someone else who has no garnishments pending. However, since federal law expressly prohibits taking adverse employment action for a single garnishment, such actions are unlawful in the state of New York.
In sum, New York income execution law can get tricky in all but the most routine situations. Multiple garnishments, different types of creditors and debts, and the occasional intervention of bankruptcy – all can create complicated debtor-creditor-income execution scenarios. Accordingly, it is often wise to hire qualified debtor-creditor, legal, and tax professionals in whatever field is presenting the challenges and issues at hand. Though the internet is a start, it is often the professional who can maximize the final result you want.
New York Law
Specific state laws include NY Civil Practice Law Sec. 5241 et seq., concerning income executions for support, and Sec. 5231 et seq., concerning income executions for other kinds of debts.
Public Law 99-150, enacted on November 13, 1985, amending the Fair Labor Standards Act
Title II of the Consumer Credit Protection Act, 15 U.S.C. Section 1671 to 1777) – applies to all garnishment orders