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Grow Your Business Finances

Wage Garnishment: What Employers Need to Know

Wage Garnishment: What Employers Need to Know
Credit: Shutterstock/LovelyDay12

You've received a notice that your employee is subject to wage garnishments. What do you do? Employers are obligated to comply with these notices, which are court-approved attempts by a creditor to collect an outstanding debt from one of your employees. But understanding the process and knowing what you can (and can't) do in response to a garnishment notice might be difficult for an employer who has never handled one before.

Wage garnishment is covered by the federal Consumer Credit Protection Act (CCPA), the specific regulations of which are administered by the U.S. Department of Labor (DOL). Wage garnishments are generally a response to unpaid debts. There are six common types of wage garnishments: child support, creditors, bankruptcy orders, student loans, tax levy and wage assignments.

Under the law, wage garnishments can claim either 25 percent of an employee's disposable earnings or all disposable earnings beyond 30 times the federal minimum wage, whichever number is less. In other words, only a portion of an employee's paycheck can be applied to wage garnishments. There are cases, however, where wage garnishments can claim even more of an employee's paycheck, such as in the case of child support, when up to 50 percent of disposable income can be taken.

As an employer, you are prohibited from retaliating against an employee who is subject to wage garnishments for one debt. Terminating an employee or punishing them in the workplace is illegal.

"An employer is responsible for executing a wage garnishment order and cannot terminate the employee to avoid compliance," said Thomas J. Williams, a tax accountant at Your Small Biz Accountant. "The agencies require the employer to process the request and remit the monies promptly."

However, if an employee is subject to multiple or repeated wage garnishments, that's a different story. The level of protection for employees dealing with wage garnishments varies from state to state.

The wage garnishment process for employers usually begins with a garnishment notice or order, which generally comes from a court or government agency. As soon as that notice is received, an employer is obligated to start withholding the specified amount from employee paychecks and begin sending it to the creditor.

However, employees have a right to challenge the garnishment in court, and if they choose to do so, employers should instead remit the garnishment to the court or agency that issued the wage garnishment order. That body will act as custodian of the funds until the dispute is settled.

After receiving a wage garnishment notice, employers must confirm receipt and indicate their intent to comply with the order. This communication must be sent within one week of receiving the original order.

Dealing with a wage garnishment can be difficult for the employer, as well as the employee, but there are a few things that can help ease the burden, Williams said.

"The employer may be eligible to keep a nominal processing fee from each paycheck, depending the on the state jurisdiction," he said. "And most payroll companies are willing to input the garnishment details into the employer's payroll file to ensure that it appears correctly on each paycheck."

Some states will even offer reimbursement to employers for incurring the administrative burden of dealing with wage garnishments. Reading up on your state's laws about processing fees or reimbursement and contacting your payroll partners are good moves when first receiving a wage garnishment notice.

A single employee might be subject to more than one garnishment. Sometimes an employee will already be subject to the maximum amount of garnishments allowed under the law when employers receive a new notice. In that case, which one gets paid?

For the most part, it's first come, first served. Whichever garnishment notice arrived first tends to receive priority. However, there are a few cases when that is not so. Child support garnishments or tax-related garnishments, for example, receive top priority over other debts. They can even supplant existing garnishments altogether, reducing their repayment rate or delaying them altogether.

The way a wage garnishment situation ends might vary from state to state. However, there are a few expected ways wage garnishments usually conclude:

  • Some garnishment notices might explicitly list an end date, regardless of the total amount owed.
  • An employer might receive a notice of termination for a wage garnishment.
  • An employee's debt could be paid off through the wage garnishment.

If any of these milestones are reached, employers should stop withholding the garnishment from employee paychecks and resume their normal compensation immediately.

Adam C. Uzialko

Adam received his Bachelor's degree in Political Science and Journalism & Media Studies at Rutgers University. He worked for a local newspaper and freelanced for several publications after graduating college. He can be reached by email, or follow him on Twitter.