With the new year comes an increase in the minimum wage in New York. The new rate depends on the region where the employee works. As of January 1, 2025, the state minimum wage increased by $0.50. In many parts of New York, the minimum wage is now $16.50, more than double the $7.50 federal minimum wage. Will the new minimum wage affect debt collection? The answer depends.
An increase in wages, regardless of the amount, provides additional funds for an individual to pay their debts. However, how much can someone earning minimum wage afford to pay toward your claim?
A person working 35 hours per week at New York state minimum wage ($16.50) earns approximately $2,860 per month or $34,320 annually. There may not be much disposable income left after deducting expenses such as rent and food.
Even if you decide to pursue legal action and enter a judgment, the increase in minimum wage will affect the amount that can be garnished from the individual’s salary. A person must have disposable income in order for their wages to be eligible for garnishment.
To calculate disposable income, the salary must be more than 30 times the federal minimum wage of $7.50 or 30 times the state minimum wage, whichever is greater. The disposable income is then subject to garnishment at 10%.
A person working 40 hours at $16.50 per hour would have $165.00 in disposable income. Ten percent of that, or $16.50, would be subject to garnishment. This assumes there are no other garnishments against the individual’s salary.
Despite the increase in the state minimum wage, if you are trying to collect from someone earning close to or minimum wage, it may make better economic sense to accept voluntary payments in an amount greater than garnishment would yield.
Be mindful of New York’s revised statute of limitations. You have three years to enforce your right to be paid for consumer claims. Only payments received within the first three years will extend the life of the debt should you need to pursue debt collection.
Have questions? Contact Frank, Frank, Goldstein and Nager for a consultation. You can reach us by email or call +1 (212) 686-0100.
