Where a lack of clarity exists in states law about whether a voluntary wage assignment is enforceable against the employer, payroll professionals should refer to federal and common law, said a labor and employment lawyer.
Navigating the mixed-bag of state requirements that accompany voluntary wage assignments is tricky, but a firm grasp on these laws may help employers steer a compliance path free from confusion, cost, and risk, said Martin Brook, a labor and employment lawyer with Ogletree, Deakins, Nash, Smoak & Stewart in Detroit.
Employers faced with a voluntary wage assignment, which is most commonly encountered as a so-called payday loan, must decide if the assignment is valid and what is required of them based on the law in the state where the employee works.
Generally, federal law requires that employees must be able to revoke a voluntary wage assignment at will, but imposes no time limits or methodology requirements, Brook, , Brook, who also is running for Congress as a representative for Michigan’s 9th district, said May 15 to attendees at the 36th American Payroll Association Congress at National Harbor, Md.
Federal law sets a floor, but states can make things more favorable to employees, he said.
State Requirements Run the Gamut
The state where an employee works determines the employer’s requirements with regard to implementing a voluntary wage assignment, and the requirements can range from prohibiting implementation to requiring it.
However, most states are in the “muddled middle,” where it is very confusing as to what the law says, Brook said. These states are Alaska, Arizona, California, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Kansas, Michigan, Montana, Nebraska, Nevada, New Mexico, New York, North Dakota, Oklahoma, Oregon, South Carolina, South Dakota, Texas, Utah, Vermont, Washington, and Wisconsin.
Of the remaining states, Alabama, Connecticut, the District of Columbia, Missouri, and New Jersey prohibit voluntary wage assignments from being implemented. In Illinois, Maine, Maryland, and Rhode Island, voluntary wage assignments are valid and enforceable, and in 15 other states, voluntary wage assignments are enforceable only with employer consent.
Brook said that if no state law says you have to implement a voluntary wage assignment, then you don’t have to.
With an employer’s consent, voluntary wage assignments are valid in Arkansas Indiana, Iowa, Kentucky, Louisiana, Massachusetts, Minnesota, Mississippi, New Hampshire, North Carolina, Pennsylvania, Tennessee, Virginia, West Virginia, and Wyoming.
Arkansas law says that voluntary wage assignments are valid to secure loans under $200 if they are accepted by the employer in writing and filed with the county clerk, Brook said. For amounts over $200, if there is no law that says you must honor a voluntary wage assignment for over $200, then you don’t have to, he said.
Employer Best Practices
To steer clear of confusion related to voluntary wage assignments, employers should draft internal procedures that reflect the basic types of state law that may be encountered and adopt a company policy that they cannot assign earned or unearned wages without employee consent, unless doing so is contrary to law.
Employers also should document and record everything and, if an employee wants to revoke a voluntary wage assignment, they should help, asking for a written request to be provided to the creditor at will, Brook said, noting that as soon as an employer knows the employee objects, the legal authority of the document allowing the withholding ends, he said.
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