Wage Garnishments: Rules & Guidelines for Employers
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Last Updated: 05/30/2023
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When notified of the need to garnish wages by a federal/state agency or court, business owners may not always be clear on their responsibilities. It's important that employers understand their obligations under applicable laws when they receive a wage garnishment, since failure to comply with a garnishment order can result in fines and penalties.
Garnishments have specific forms and rules governing payroll calculations, and if an employee has multiple garnishments, the situation can become increasingly complex. Review these answers to some frequently asked questions regarding the employee wage garnishment process.
What Is Wage Garnishment?
A wage garnishment is a legal or equitable procedure where some portion of a person's earnings is withheld by an employer for the payment of a debt. A payroll garnishment is typically initiated through a court order or government agency action (such as an IRS levy) that requires an employer to withhold a percentage of an employee's compensation. When notified of an order to garnish wages, an employer is legally obligated to make the appropriate deductions from an employee's wages and direct payments to a designated agency or creditor.
How Does Wage Garnishment Work?
Although it's usually up to an employee to decide how to manage their finances, there are a number of mandatory payments they are required to fulfill. Some of these are obligations that are typically deducted from payroll, such as federal and state taxes. However, sometimes an employee can fall behind on other financial obligations they have incurred.
If an employee has a debt or financial obligation that they are not fulfilling, creditors can take legal action in the form of seeking court-ordered deductions from an employee's pay in the form of a wage. Wage garnishments can come from court orders or the government depending on the type of debt. The court or government agency will submit a "writ of garnishment" to the debtor's employer informing them of the wage garnishment.
Wage garnishment rules require an employer to withhold a certain percentage from a debtor's paycheck until that person is no longer in default on their debt. How much a person owes, the type of debt, how long they have defaulted, their total earnings, and the amount of disposable income are all factors needed to calculate the percentage deducted from each paycheck.
What Type of Debt Can Result in Garnished Wages?
There are many types of situations that can trigger wage garnishments. Some of the more common garnishment examples include:
- Child support
- The default of a student loan
- Unpaid taxes
- Other consumer debts such as credit card debt or an auto loan
Voluntary wage assignments elected by the employee, such as those for medical insurance or pre-tax benefits programs, are not considered wage garnishments. When an employer receives the notification of a wage garnishment, it's important to remember that it is time-sensitive, and failure to process the garnishment within the allotted time frame can lead to penalties.
What Wages Can Be Garnished?
For most garnishments including child support, creditor garnishments, and student loans, Title III of the federal Consumer Credit Protection Act (CCPA) requires that the amount of pay garnished should be based on an employee's "disposable earnings," meaning the amount remaining after legally mandated deductions.
Broadly speaking, disposable income is the employee's total compensation, less mandatory deductions including federal, state, and local taxes; state unemployment insurance contributions; and Social Security taxes. Disposable income includes, but is not limited to, payments made in the form of salaries, bonuses, and sales commissions, as well as earnings derived from retirement plans and pensions. Tips aren't usually regarded as earnings for garnishment, but service charges are considered earnings.
How Much of an Employee's Wages Can Be Garnished?
The maximum amount of wages garnished varies depending on the garnishment, but they range from 15% of disposable earnings for student loans to as much as 65% of disposable earnings for child support (if the employee is at least 12 weeks in arrears).
In states that have enacted laws differing from federal wage garnishment requirements, employers must comply with state laws demanding a lesser garnishment. And because state laws differ (North Carolina, South Carolina, Pennsylvania, and Texas generally prohibit wage garnishment for consumer debts altogether), employers should ascertain what's required of them by state law before proceeding with a garnishment. No matter how high the debt, employees will always be allowed to keep a certain percentage of their paycheck for general living expenses.
|Type of Debt
|Percentage of Wage Garnishment
|Alimony or Child Support
|Up to 50% of a worker's disposable earnings if the worker is supporting another spouse or child, or up to 60% if the worker is not.
|Student Loan Default
|Up to 15% of a worker's disposable pay can be withheld until the defaulted loan is paid in full or default status is removed
|The IRS factors in the employees standard deductions and number of dependents. The maximum amount is 50%. Wage garnishment rates vary from state to state.
|Wage garnishment depends on an employee's income and pay schedule with a 25% maximum.
Always refer to the individual's court order to determine the correct percentage to withhold, failure to do so may result in the employer being held liable for the total garnishment amount.
What Rules Should an Employer Follow if an Employee Has Multiple Garnishment Orders?
If an employer receives multiple wage garnishment orders on an employee, there are rules in place that govern how to determine who gets paid. Generally, it's first-come first-served, but some debt obligations take priority, especially if the garnishment rate is already at its maximum. For example, child support and tax-related garnishments take precedence regardless of when the notice is served. Against tax or child support wage garnishments, other debts such as consumer debt or defaulted loans will be delayed, or their repayment rate will be reduced if an employee's wages can accommodate it.
Can an Employer Refuse To Garnish Wages?
Garnishing wages may feel challenging for an employer especially, when an employee may feel embarrassed about their financial situation. However, wage garnishments are a legal procedure and it's unlawful for an employer to refuse to execute them fully. Not only must an employer garnish wages, but they must do so until the garnishment ends.
Who Can Garnish Wages Without a Notice?
Wages should not be withheld without some type of notification. However, whether the notice has the backing of a court ruling can make all the difference. Generally, a court order is required to garnish wages.
Different laws for garnishing wages related to debts such as student loans, unpaid state taxes, and child support apply depending on the state. Some states do not require a court order while in others, garnishing wages is strictly forbidden without having gone through proper legal channels. It's important to note that the IRS will always send a notice regarding wage garnishments. That notice does not have to come from a court order.
Can Employers Terminate Employment of a Worker Due to Garnished Wages?
Under CCPA provisions, an employer cannot discipline or terminate an employee whose wages are being garnished for a solitary debt. However, federal laws and CCPA provisions do not extend protection for employees with multiple wage garnishments. Some states may provide greater protection for employees by increasing the number of garnishments that can serve as the basis for termination or by prohibiting all terminations because of garnishments, so it's important to understand any applicable state regulations that may affect your business.
In some states, provisions exist that allow employers to seek reimbursement from the employee for administrative costs related to excessive garnishments. Additionally, some types of wage garnishments, such as child support, allow for similar provisions that authorize employers to recoup administrative expenses. The limits on the maximum amount of the administrative fee that can be deducted vary by state. When considering employment actions in relation to an employee who has active garnishments, consider working with a knowledgeable HR source or employment attorney.
How Will I Be Notified if an Employee's Wages Need To Be Garnished?
Employers are typically notified of a wage garnishment via court order or IRS levy. They must comply with the garnishment request and start withholding and remitting payment as soon as the order is received. IRS wage garnishment and levy paperwork will walk you through the steps of completing the wage garnishment. Paperwork should also include any relevant contact information, which you should not hesitate to use if you have any questions.
Employers are required to comply with every garnishment request. As soon as they receive an order, business owners typically need to start withholding and remitting payment.
How To Garnish Wages
Upon being notified of a wage garnishment court order, an employer should immediately alert the employee to the situation in writing. Depending on the garnishment, there may be a form provided for this (i.e., Form 668 for a federal levy). An employer can also draft a letter detailing the specifics of the wage garnishment order, the amount to be taken from each payment, and the length of time the wages will be garnished.
Concurrently, an employer should notify their HR and/or payroll departments so they can start the wage garnishment process and ensure that payments are sent to the appropriate agency or creditor (whether the employee wishes to comply or not). Taking these actions helps to protect the business from legal repercussions for failing to respond to the order.
After the employee's debt has been paid, the procedure for stopping the garnishment will vary depending on the type of garnishment. For federal levies, employers will receive Form 668-D, for child support the employer will receive a notice or letter from the state, and creditors will send employers a "Notice of Termination/Release of Wage Garnishment Order" for creditor garnishments.
How Long Does It Take To Release a Garnishment?
Because there are many variables in this process, there is no standard time for how long it takes to release a payroll garnishment. These variables include the amount a debtor owes, how much of their pay is garnished, and how much they make. The release can be based on a specific end date, a debt's payment in full, when an employer is notified that the garnishment is terminated, and the debtor no longer being considered in default.
What Does a Garnishment Look Like on a Pay Stub?
An employee whose wages are being garnished should expect to see a line-item entry that says "Garnishment." The purpose of the garnishment may or may not be included. For example, the line item may read "Garnishment — Child." The amount deducted from that pay period should also be included so an employee knows exactly how much of their earnings went to the wage garnishment.
Complying With Wage Garnishment Orders Is Critical
Employers should have a basic understanding of garnishments and a plan in place to respond when they occur. Consider working with a professional to ensure your plan and procedures are compliant with applicable laws. Using a garnishment payment service can help you remit funds to the correct agency and help protect against undue liability and lawsuits.