Wage Assignments in Kentucky

A simple general definition of a wage assignment is the voluntary transfer of a debtor's future wage payments, usually as security for a specific debt.

A Kentucky statute, KRS  §337.060 makes it illegal for an employer to withhold any part of an employee's wages unless,

1. The withholding is specifically authorized by local, state or federal law, or;
2. The employee expressly authorizes the wage deduction in writing.

A  voluntary written wage assignment may commonly be used when an employee obtains a loan from his or her employer and  repays the loan by a payroll deduction. An employer who makes such a loan cannot take it out of the employee's pay without a proper written assignment from the employee. In this type of wage assignment, standard principles of contract law are sufficient to legitimize the transaction. The employer is the lender, the employee is the borrower and both are parties to the agreement.

Some states, such as Illinois, have enacted statutes for third-party wage assignments in a consumer lending context. See, 740 ILCS 170 for the Illinois Wage Assignment Act. Kentucky has nothing similar to this Illinois statutory third-party wage assignment mechanism. On the contrary, KRS  §190.100(c) specifically prohibits wage assignments in retail installment sales contracts:

"No provisions for confession of judgment, power of attorney therefor, or wage assignment contained in any retail installment contract shall be valid or enforceable."

There are many other contexts apart from retail installment sales contracts in which a voluntary wage assignment would be a valid contract provision under Kentucky law. But, if the debtor's employer is not a party to the agreement, standard principles of contract law would not obligate the employer to honor the wage assignment. Without statutory law provision imposing such an obligation on the debtor's employer, a voluntary wage assignment could be legal but impossible to enforce and therefore worthless to the creditor by itself.

An example of a Kentucky statutory wage assignment provision with teeth can be found in KRS 405.465(4), regarding child support wage assignments.

"The [child support wage assignment] order shall be binding upon the employer or any subsequent employer upon the service by certified mail of a copy of the order upon the employer and until further order of the court."

KRS § 286.4-570, — Wage purchases -- Assignment of compensation, offers us a somewhat puzzling level of ambiguity. A "wage purchase" is commonly known as a payday loan, and KRS § 286.4-570 validates payday loan wage assignments, while limiting them. If the employee expressly authorizes a payday loan wage assignment in writing, KRS  §337.060, supra, would not make it illegal for an employer to honor the wage assignment, but there is no Kentucky statutory provision which requires an employer to honor a payday loan wage assignment.