Withholding Bonus Pay in Lieu of Receiving Loan Payments
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I am the Compensation Manager for a financial institution. Many of our employees have opened mortgage or car loans at our bank. Recently, we had several high profile cases of employees defaulting on their loan payments, or asking to have their loans charged off. Our CEO wants my team to research ways to withhold pay to make up for missed loan payments. We have advised that this would be a dangerous approach. The fact that the individuals are our employees has little to do with the fact that they are also our customers. However, I am doing my due diligence and was hoping to hear from some of you who may have run into a similar predicament. Does Human Resources have any right to place a garnishment on employees' pay due to their poor financial self-management? Looking forward to your input... Thanks.
Comments
We've seen this question come up before but I wasn't able to easily find the posting.
What I said then, and still stand behind, is that your loan through your business to your employees must be kept 100% separate from your employment relationship with them. Follow standard legal avenues for collecting on external customers who default for collecting from internal customers. HR has no right to garnish wages absent a court order. These are not pay advances connected to withholding agreements (which aren't legal or are heavily restricted in some states, anwyay): these are proper, regulated loans through a financial institution and your internal customers should be handled exactly the same as your external customers.
Everything I have read says that you can not deduct wages for anything other then for regular deductions, i.e. health care premiums etc, or under a contract that the employee has signed, i.e. a payroll advance. You have to separate the two identities.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
The first is that your employee needs to be treated as any other employee would who is not a customer of your bank. Would you deduct money from their check if the gas company called you and ask you to with out the proper documentation?
The second is your customer is defaulting on their loan. I would advise proceeding as you would with any other customer. It should be up to your collections department to handle default loans. HR should only become involved if and when collections has gone through the proper legal proceedings and has been awarded a judgment before any garnishment is enacted.
I would look into my policies about allowing employees to use the loan services of the bank for this very reason. I have a friend who works for a credit union and is only allowed to take a loan after board approval.
As a creditor, you can look into your state's laws on wage garnishment. I know in TX that the only garnishments that are legal are child support, IRS liens or student loans. Different states' wage laws allow for different garnishments and maximum amount that can be garnished.
Whether you allow for "voluntary garnishments" is another issue. You have to look into whether you just want to allow them for employees for loans with your institution or whether you are going to accept them from other creditors. Personally, I think it is not wise to open this can of worms. I don't feel like the employer should be paying the employee's bills with wages unless required. But that might be because I perform both HR and payroll functions....and garnishments can be a PITA.
That said, to deduct you will have to have a voluntary authorization to do so. Like others said, there are limited deductions that can be taken without employee authorization.
I also agree that it is time to look into employee loans and how they are written/approved.