Wage garnishment: A quiet but growing problem

The U.S. economy may be on the mend, but the Great Recession's financial repercussions are still washing over millions of Americans, and often on a very personal level.

One rarely discussed issue is wage garnishment. That's when a plaintiff has a legal order to regularly collect a certain sum of money from an employee's wages to recover a debt owed. The garnished wages are then sent off to a creditor until the debt is paid in full.

Title III of the U.S. Consumer Credit Protection Act says employers can garnish up to 25 percent of an employee's earnings, although that percentage can rise in the case of child support.

However, according to a new report by ADP, the payroll processing and management services giant, laws have not necessarily kept up with the current economic realities.

ADP studied 2013 data from 13 million active employees, ages 16 and up, in what's apparently an unprecedented look at U.S. wage garnishment trends. And the results revealed some startling statistics.

The study finds 7.2 percent of the nation's employees have had their wages garnished. Over 40 percent of those garnishments were for child support, while tax debts accounted for close to 20 percent.

The highest rate of wage garnishment, 10.5 percent, was found among employees aged 35 to 44, which are considered the peak years for child-rearing, divorce and debt load.

In terms of income brackets, garnishment rates were highest (at 10 percent) among people earning between $25,000 and just under $40,000. And, with the exception of child support, garnishment rates were at similar levels or men and women.

The nation's manufacturing sector led all other industries when it came to percentage of companies with garnished employees, at 48 percent, followed by the transportation and utilities sectors, both at 42 percent.

The overall number of garnishments has boomed in recent years. According to the report, wage garnishments are up 121 percent in Phoenix compared to 2005 levels. They've risen 55 percent in Atlanta since 2004, while jumping 30 percent in Cleveland between 2009 and 2009.

"As a result," the ADP study notes, "businesses appear to be caught in the middle, striving to fulfill their obligations to employees under wage payment laws and to creditors under garnishment laws."

And while the stigma previously attached to garnishments appears to be fading, the study notes the process is "often humiliating and stressful for employees," and can affect worker productivity, motivation and morale.

"Employees in this position may feel they no longer work for themselves and their futures," it adds, "but for the institutions to which they are indebted."

The ADP study also suggests that both employers and employees may be better served if the companies involved become "more proactive" by assisting garnished workers while potentially decreasing future garnishments.