Wage Garnishments: Rules & Guidelines for Employers

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 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.

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.

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.

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.