Updated Wage Garnishment Study from the ADP Research Institute® Examines New Facets of This Workforce Issue
By Julie Farraj, division vice president and general manager, Wage Garnishments and Unemployment/Employment Verification Services for ADP Added Value Services
A new 2017 study by the ADP Research Institute® (ADPRI) continues to flesh out the facets of wage garnishment and its impact on employers and their workers.
Based on the anonymous 2016 pay data of about 12 million U.S. workers, this new study reveals that one in 14 of those workers are carrying a wage garnishment and an estimated 12 percent of those with a garnishment have more than one type of wage garnishment. This research also introduced a new metric – the number of wage garnishments per employee, which according to the study averages 1.4 per employee.
The study showed that in 2016, approximately 7 percent of the U.S. workforce had their wages garnished. Of the four types of wage garnishment studied, the highest rate was for child support, followed by “other” general garnishments, such as student debt and consumer loans, tax levy, and bankruptcy.
The federal government and all 50 states allow for some form of wage garnishment defined as the legal seizure of employee pay to settle debts or meet support obligations. And the amount of funds being garnished is staggering. For example, for students who graduated or left school in 2016, the average amount of student debt is just over $37,000, which has resulted in a student loan delinquency rate of 11.6 percent.
Additionally, while employees try to manage the stress of having their wages garnished, their employers try to manage the compliance burden associated with those wage garnishments. Employers that fail to comply with garnishment orders can face costly penalties. In some jurisdictions, the non-compliant employer can even be held liable for the full amount of their employee’s judgment debt.
This new study looks at wage garnishment from an employer’s perspective, and shows that company size, industry, and the location of employee workplaces are all crucial factors that contribute to an organization’s compliance burden.
In terms of company size, the study revealed a higher wage garnishment rate in larger firms, as well as a greater number of employees carrying higher numbers of garnishments. Larger companies proportionally also have more employees with student-related and consumer indebtedness.
Industry matters, too. The study found that the goods-producing sector has higher wage garnishment rates, a higher average number of garnishments, and greater average income per garnished employees across all states. For instance, in the transportation and utilities sector, the overall wage garnishment rate was 10.7 percent, followed closely by mining, quarrying, and oil/gas extraction, which saw a 10.6 percent garnishment rate. By contrast, the education and health services sector experienced a 5.3 percent wage garnishment rate.
The trend in the goods-producing sector seems to extend to the states that have a substantial presence of goods-producing facilities. They have a large percentage of employees with high garnishment rates, whereas states with more of a service-based economy tend to fare better. For example, among the top 15 states that constitute 70 percent of U.S. employment, Indiana and Wisconsin each has the highest garnishment rate (10.5 percent), while Massachusetts has the lowest rate at 2.8 percent.
Wage garnishment trends vary by region, as well. For instance, the Midwest and South have proportionally higher numbers of employees with wage garnishments – with the Midwest leading all regions with the highest average number of wage garnishments held per employee (1.49). Both regions are heavily invested in goods-production.
In the 2014 whitepaper, “Garnishment: The Untold Story,” the ADPRI presented a first-of-its-kind look into U.S. wage garnishment based on anonymized payroll data of approximately 13 million U.S. workers from 2013. The findings from that study can be linked to this new study. For example, virtually all four major reasons for wage garnishment studied – child support, tax levy, bankruptcy, and other (student loans, consumer debt, etc.) – have remained generally constant in terms of proportion relative to the overall wage garnishment rate.
Clearly, wage garnishment can have a profound effect on the employee who is being garnished, as well as the employer who must implement the garnishment. It’s important for businesses of all sizes to understand the different types of wage garnishment, familiarize themselves with the laws governing them, and learn ways to accurately and efficiently process them. The expanded view of wage garnishments outlined in this new study may provide employers with greater insights into how garnishment may affect their workforce and organizations.
Read the full report here: The U.S. Wage Garnishment Landscape: Through the Lens of the Employer.