Garnishment Changes Coming to Colorado in 2020

If your organization processes payroll for employees in Colorado, do your payroll person or department a favor and share this article with them. Changes are coming to Colorado’s garnishment process in 2020 that they need to know about. Thankfully, most of these changes will be welcome ones that help employers to process these orders more easily. However, some of the changes add to an employer’s administrative burden.

The changes affect Writs of Continuing Garnishment. These are creditor garnishments for recovery of consumer debts owed by your employees. To receive a Writ of Continuing Garnishment, the creditor must first sue your employee and be awarded a judgment. Once the creditor wins a judgment, they can serve you with a Writ of Continuing Garnishment that orders you to deduct from the employee’s pay for a period of time to pay the judgment.

The changes go into effect for Writs of Continuing Garnishment issued on or after October 1, 2020.

When to Begin Withholding?

Currently, one of the biggest difficulties for employers in processing these Writs is that they go into effect immediately upon service. That means employers are expected to process these Writs even if they receive them on or near a payday. As most employers work ahead on payroll or work with a payroll provider, processing a Writ received on or near payday is at least disruptive and difficult, and sometimes, comes at a cost to the employer. However, employers who take the risk of not processing until the next payday may be pursued by creditors for missed payments. The good news is that the new law will give employers a lot more time to begin processing these Writs. The new law requires Writs to begin on the first payday that occurs at least 21 days after service of the Writ. If the employer is already processing a Writ, the second Writ must begin on the first payday after expiration of the prior Writ.

What Are “Earnings” and “Disposable Earnings”?

Earnings subject to garnishment include all compensation for personal services whether denominated as wages, salary, commission, or bonus and funds held in or payable from health, accident, or disability insurance funded and disbursed by the employer. Whether tips are included has sometimes been contentious. The new law confirms that tips are not included and employers do not have to collect, possess, or control the employee’s tips for payment on a Writ.

Disposable earnings are the employee’s gross wages less only deductions required by law. Deductions required by law have been limited to federal and state tax withholding and deductions for court-ordered health insurance premiums such as when the employer has received a National Medical Support Notice. Under the new law, health insurance premiums for the employee’s own insurance and insurance for members of the employee’s household will be deducted before determining disposable earnings even when health insurance premiums are not court-ordered.

How Much of the Employee’s Disposable Earnings Must be Withheld?

Currently, employers must withhold 25 percent of an employee’s disposable earnings to pay the creditor. The new law reduces this to 20 percent.

What Notice Are Employers Required to Give Employees?

Currently, employers must only provide employees with copies of the completed Writ with their paycheck containing the first deduction from their pay. Under the new law, employers will be required to provide a Notice of Garnishment including an estimate based on the employee’s most recent paycheck of the amount that would likely be withheld from future paychecks. The contents of the Notice are included in the new law. The employer must provide the Notice within seven calendar days of when the Writ is served on the employer.

What Notice Are Employers Required to Give Creditors?

Currently, employers are just required to respond to the Writ within a specific time frame. Under the new law, employers will also be expected to notify the creditor if the person named on the Writ is not an employee or if the Writ doesn’t contain all the necessary information to process it.

What Options Does the Employee Have to Object to the Writ?

Currently, employees can fight the initial suit brought by the creditor. If they lose and judgment is rendered against them, they can object to the employer’s calculation of amount to be withheld each pay date during the effective garnishment period. The new law gives employees the ability to request a hearing to determine if a greater portion of their disposable earnings should be exempt from garnishment in consideration of their living expenses and those of the family they support.

Contact us with your questions about these upcoming changes. We have updated our garnishment FYIs and class materials. We will let you know when the State of Colorado updates its guidance on garnishments or its garnishment forms. We will let you know when that happens and provide any new guidance and forms to you.