Arizona voters passed Proposition 209 in November. Although billed as a healthcare debt interest rate limit, it surprisingly impacts Arizona employers. In Arizona, generally, thirty days after an election, propositions will become law. The effective date was December 5, 2022, and applies prospectively only. In other words, it does not affect Judgments entered before December 5, 2022.
The largest change for employers, and their payroll providers, is the changes relative to wage garnishments. The percentage of wages subject to garnishment has been significantly reduced. Previously 25% of the garnishee’s non-exempt disposable earnings for a work week could be garnished. Under the new law, that will be reduced to 10%. There is a second test as well. Previously, the disposable earnings for a work week were 30 times the applicable hourly Arizona minimum wage. That has been increased to 60 times. Because Arizona’s minimum wage is currently higher than the federal minimum wage, that is the controlling rate. If federal minimum wage were to increase and be higher than Arizona’s minimum wage, then the Federal rate would be the controlling minimum wage rate. There is no increase in the earning exemption and no annual increase is contemplated in the new law. It is important to note that the temporary court order differentiates between debt incurred and contracts that were entered into before and after December 5, 2022. If prior to December 5, the old law which allows 25% garnishment is in place. If after December 5, 2022, then the new law which only allows for 10% garnishment is in place.
The employer should look at the garnishment package to see when the judgment was effective as that will dictate whether 25% or 10% of the employee’s non-exempt disposable earnings can be garnished. While the judgment creditor should provide an undated wage garnishment package that reflects the updates implemented by Proposition 209, the employer should not rely on that to occur.
If the employer over-withholds, that money should be immediately returned to the employee and not be paid to the judgment creditor. Under ARS 12-1598.12(D), it is the judgment creditor’s obligation to ensure the “garnishee does not withhold more nonexempt earnings of the judgment debtor than are necessary to satisfy the underlying judgment.” This language obligates the judgment creditor to alert the Garnishee employer that they withheld too much. However, if the employer makes a mistake and withholds 25%, it is best practice to alert the employee immediately and, if those funds have already been distributed to the creditor, the employee can ask for a refund from the creditor directly or ask that it be applied to future amounts. If the funds have not been distributed to the creditor yet, then the employer can return any amounts withheld above the 10% amount.
If you need assistance implementing Arizona Proposition 209, reach out to an experienced employment law or creditor’s rights attorney.