- Wage garnishment is when a portion of an employee’s pay must go directly toward paying off specific types of outstanding or recurring debts.
- Employers must understand and comply with their state’s wage garnishment laws and execute the wage garnishment.
- Employers must carefully process and track garnishments and accurately calculate garnished amounts.
- This article is for small business owners who want to prepare for wage garnishments.
You’ve received a notice that one of your employees is subject to wage garnishments, meaning you must withhold a portion of their paycheck and transmit it to a specific source. Wage garnishment notices are court-approved creditor attempts to collect on a judgment. Employers must comply with these notices and help execute the wage garnishment.
Handling wage garnishment notices may be confusing and challenging. We’ll provide an overview of the wage garnishment process and what employers should and shouldn’t do in response to a garnishment notice.
What are the rules of wage garnishments?
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. Wage garnishments are generally a response to unpaid debts.
There are six common types of wage garnishments:
- Child support
- Bankruptcy orders
- Student loans
- Tax levy
- Wage assignments
Did you know?: Before you start your search, it helps to have at least general knowledge about How much of an employee’s paycheck can be taken?
Under the law, wage garnishments can claim either 25% of an employee’s disposable earnings or all disposable earnings beyond 30 times the federal minimum wage — whichever is less.
In other words, only a portion of an employee’s paycheck can be applied to wage garnishments. There are cases, however, in which wage garnishments can claim even more of an employee’s paycheck, such as in the case of child support, when up to 50% of disposable income can be taken.
Can employers take action against the employee?
As an employer, you are prohibited from retaliating against an employee who is subject to wage garnishments for one debt; firing 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. In these cases, the level of protection for employees dealing with wage garnishments varies from state to state.
How do you process wage garnishment orders?
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 an employer receives the notice, they must start withholding the specified amount from the employee’s paychecks and send it to the creditor.
However, employees have a right to challenge the garnishment in court. If they choose to do so, employers should remit the garnishment to the court or agency that issued the wage garnishment order, and 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 the employer’s receipt of the original order.
How do you track wage garnishments?
Wage garnishments involve more than giving part of an employee’s check to the government; you must follow specific rules and calculations or else risk fines and other penalties. Too many missed or improperly calculated payments can lead to penalties as large as the employee’s debts, so they have the potential to hurt your business’s bottom line seriously.
However, specific tools can help you track garnishment amounts by making them automatic elements of your payroll processing checklist. Some of the best payroll services and best accounting software include options to calculate employee wage garnishments automatically. This is the most straightforward way to track wage garnishments.
Payroll services that handle wage garnishments include the following:
- Paychex: Paychex is our pick for the best payroll processing service for larger businesses. It includes deductions for wage garnishments and other factors, like health insurance and uniforms. Read our in-depth Paychex review to learn more.
- Intuit QuickBooks Payroll: QuickBooks is our choice for the best payroll service for small businesses. It lets you run payroll for employees at various pay grades in every state and can handle all garnishments and tax withholdings. Read our Intuit QuickBooks Payroll review to learn more.
You should also maintain working knowledge of wage garnishment laws within your state. No two states have the same laws, and no two people with wages garnished have the same situation. A lack of knowledge could end up hurting you if you’re unprepared.
Tip: Attend webinars and subscribe to publications that cover labor regulations to keep up with wage garnishment laws and changes to labor laws.
What support is there for handling a wage garnishment?
Dealing with wage garnishment can be challenging for employers and employees, but several resources can help ease the burden.
“The employer may be eligible to keep a nominal processing fee from each paycheck, depending on the state jurisdiction,” Williams 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 even offer reimbursement to employers for incurring the administrative burden of wage garnishments. It’s a good idea to read up on your state’s laws about processing fees or reimbursement and contact your payroll service or PEO when you receive a wage garnishment notice.
What if an employee is subject to multiple garnishments?
A single employee might be subject to more than one garnishment. Sometimes an employee will already be subject to the maximum 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. For example, child support garnishments or tax-related garnishments receive top priority over other debts. They can even supplant existing garnishments, thus reducing their repayment rate or delaying them.
Did you know?: Wage garnishments and other withholdings are considered payroll liabilities.
How does a garnishment end?
How and when a wage garnishment situation ends can vary from state to state. However, there are a few standard 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 wage garnishment.
If any of these milestones are reached, employers should stop withholding the garnishment from the employee’s paychecks and resume their usual compensation immediately.
Be prepared for wage garnishment
Around 2.9% of the U.S. workforce has wages garnished for consumer debts. That may not sound like a lot, but the U.S. labor population is around 164.36 million, which translates to over 4 million people with garnished wages.
While that doesn’t guarantee it will happen to someone on your team, it definitely could — and it’s best to be prepared.
Isaiah Atkins contributed to the reporting and writing in this article. Some source interviews were conducted for a previous version of this article.