Employee Wage Deductions

November 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, Managing Shareholder of Wessels Sherman’s Chicago office at (312) 629-9300 or by email at waliszka@wesselssherman.com.

Payment Cards as Wage Payments?

June 2014
By: Walter J. Liszka, Esq. 

The brilliant Illinois legislature has recently recognized payroll cards as an approved method of wage payment in the State of Illinois. This measure has passed the House (House Bill 5622) after receiving prior approval from the Senate and now awaits Governor Pat Quinn's signature. The author believes that this group is the reincarnation of Nero "who fiddled while Rome burned." As presently written, the Illinois Wage Payment and Collection Act expressly provides only for the payment of wages via Cash or via Check or via Direct Deposit and makes no mention whatsoever of payroll payment cards. Obviously, this dichotomy as to what the Illinois Wage Payment and Collection Act states and what the Illinois legislature has recently done, creates a quandary.

Based on recent guidance from the Illinois Department of Labor as of last year, the DOL attempted to clarify this confusion by establishing certain "rules and regulations" for the use of payment of wages by payroll cards, one of which clearly established that the employee must voluntarily agree to the payment of wages via a payroll card and, furthermore, that the full balance of an employee's compensation must be able to be withdrawn without the payment of any fee.

Once Governor Quinn signs House Bill 5622 into law, the recognition of payroll cards as wage payment will no longer be subject to interpretation. The Bill amends the Illinois Wage Payment and Collection Act by expressly providing for the payment of wages via payroll cards and also establishes, under Section 14.5, very specific requirements that must be met in order to pay wages via

1. Employers must not make payment of wages via a payroll card as a condition of employment of any employee. The employee must be able to voluntarily choose this resource.
2. Employers must offer employees the option of receiving their wages via Cash and/or via Check and/or via Direct Deposit and if the employee voluntarily consents, wages can be paid via the payroll card.
3. Employers must provide disclosure of terms and conditions of the payroll card option prior to initiating payment of wages via a payroll card.
4. Employees must be able to receive at least one (1) full withdrawal of their wages every two (2) weeks without incurring any fee.
5. Employees must be able to receive their transaction history once a month as well as access their balance without a fee.

There are other additional provisions that are incumbent upon an Employer who wishes to pay wages via a payroll card. It should be noted that this law, once signed by Governor Quinn, will become effective on January 1, 2015.

Questions? Contact Walter J. Liszka, Managing Shareholder of Wessels Sherman's Chicago, IL office at (312) 629-9300 or by email at waliszka@wesselssherman.com.

Employee Wage Deductions

November 2014
By: Walter J. Liszka, Esq.

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, Managing Shareholder of Wessels Sherman’s Chicago office at (312) 629-9300 or by email at waliszka@wesselssherman.com.

Employee Debt - The Bane of Employers

November 2014

By: Walter J. Liszka, Esq.

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 Managing Shareholder Walter J. Liszka of Wessels Sherman’s Chicago office at (312) 629-9300 or by email at waliszka@wesselssherman.com.