Business, Legal & Accounting Glossary
The voluntary transfer in advance of a debtor’s pay, generally in connection with a particular debt or judgment.
A debtor may negotiate with a creditor a wage assignment plan in which a portion of the debtor’s paycheck is transferred to the creditor by the employer. This voluntary agreement is in contrast to garnishment in which a creditor obtains an order from the court to collect part of a debtor’s wages from the employer. Both wage assignments and garnishment are governed by statutes in most states.
A wage assignment is similar to an assignment for benefit of creditors, in which the debtor assigns personal property to a trustee. Typically, the trustee sells the property and applies the proceeds to the debt. Any amount in excess of the debt is returned to the debtor.
Since the 1980s wage assignments have become an important method of making child support payments in the United States. In 1984 the federal government required all states to implement child support guidelines for welfare recipients. As time passed, those guidelines were implemented across the board in all cases involving child support. While a wage assignment has typically been viewed as a voluntary act by the assignee, courts now issue wage assignment orders directing employers to withhold child support payments and send the funds to a designated recipient such as a custodial parent, the court, or a state agency.
Although the paying parent may be a responsible individual who would never miss a payment, and the recipient parent may honestly report all payments received, the wage assignment eliminates potential conflict by using a neutral third party to implement the paying and reporting of payments. Employers generally do not impute bad character to an employee paying child support through a wage assignment, and the courts routinely issue orders without finding fault. Wage assignment orders are appropriate for salaried employees but do not work effectively for self-employed individuals or people in cash businesses.
A wage assignment may also be used when an employee obtains a loan from his employer and wants to repay the loan by having the employer withhold money from future paychecks. An employer who lends an employee a sum of money cannot take it out of the employee’s next paycheck without a proper, written, notarized assignment from the employee. State statutes require that legal formalities be followed, or the withholding of money can be considered an unlawful assignment of wages.
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This glossary post was last updated: 9th October, 2021 | 0 Views.