An Employer's Guide to Handling Wage Garnishment

A garnishment order is a legal remedy creditors use to collect an unpaid debt. As an employer, you may receive an order to garnish wages for several types of past-due debts, including:

• Court judgments for consumer debts (e.g., credit card debt or personal loans)
• Past-due income taxes owed to the IRS or state tax agencies
• Delinquent federal student loans
• Past-due payments for child support or spousal support

Employers are legally required to obey any orders and withhold the maximum amount permitted by state and federal law. The wage garnishment process can seem complex, but understanding your duties is key. This article reviews how to handle employee wage garnishment and what employers must do when they receive a garnishment order.

How To Handle a Wage Garnishment: A Step-by-Step Guide

When you receive a wage garnishment notice, follow a specific procedure to protect yourself and your employee. Noncompliance with wage garnishment laws can lead to sanctions against your business.

Step 1: Review the Wage Garnishment Order and Notify Your Employee

Review the wage garnishment notice. It should include instructions telling you what you must do. If your business has an HR department, send the notice to them immediately.

Notify the employee of the garnishment. They may have already received a notice, but not always. Let them know the deduction will begin in the next pay period.

Step 2: Calculate the Correct Withholding Amount

The order will state how much the employee owes, but federal and state laws limit how much you can legally withhold. All garnishments come from an employee’s disposable earnings. This is the amount of pay left after legally required deductions like federal and state taxes, Social Security, and Medicare.

The Consumer Credit Protection Act (CCPA) sets the maximum garnishment limits based on the type of debt:

• For civil judgments (credit cards, personal loans): The lesser of 25% of the employee’s weekly disposable earnings, OR the amount by which their weekly disposable earnings exceed 30 times the federal minimum wage
• For child support or alimony: Up to 50% of disposable income if the employee supports another family, and up to 60% if they don’t (if support payments are more than 12 weeks in arrears, an additional 5% may be garnished)

Some states have lower percentage limits or other protections. If a state’s law is more restrictive than the CCPA, you must follow the state law.

The table below summarizes the federal limits under the Consumer Credit Protection Act (CCPA). State laws may offer employees more protection.

Step 3: Begin Withholding and Remit Payments

You must begin withholding the calculated payroll garnishment amount as soon as you receive the notice. Even if the employee plans to contest the garnishment, you must continue payroll deductions until you get an official court notice to stop or change the amount.

Where you send the garnished wages depends on the type of debt. The order should specify the recipient and address. For instance, child support payments must go to a State Disbursement Unit, while unpaid taxes go to the IRS.

Step 4: Formally Respond to the Court or Creditor

You must complete and return the notice response form by the deadline specified. Don’t miss this deadline. Your response confirms that you have the employee on your payroll and that you’ll comply with the order.

The employee named in the order may no longer work for you, or you may have received an order. Regardless, you still must respond. Explain the situation on the response form. Don’t ignore the order or send it back unanswered.

Step 5: Manage Ongoing Compliance

If an employee quits or leaves for any reason while a garnishment is active, you must notify the court or creditor immediately. The court may also require you to follow specific reporting procedures during the garnishment period.

Don’t ignore additional garnishment orders for the same employee. State and federal laws dictate which debts have priority. In general, child support orders take precedence over other debts. Handling multiple garnishments can be complicated, so consider consulting an employment law attorney to ensure you distribute funds correctly.

Employer Prohibitions and Employee Protections

Federal and state laws offer employees some protection by limiting how much of their wages can be garnished. These laws also prevent an employer from taking adverse action against the worker.

Federal law prohibits you from firing an employee because of a single wage garnishment. Most states now use automatic payroll withholding for child support, so a notice doesn’t necessarily mean an employee is a bad debtor.

The CCPA may require an employer who wrongfully terminates an employee over a wage garnishment to reinstate the worker and pay all back wages. Deliberate violations can even lead to criminal charges and fines.

When Child Support Orders Exceed the 50-60% Garnishment Limit

A child support withholding order is different from a wage garnishment, although the terms are often used interchangeably. During a family law case, a judge sets the amount of a child support order based on income and custody arrangements. Many states automatically withhold these payments from a parent’s paycheck. This withholding can be as high as the court-ordered support amount. A separate garnishment for past-due support is subject to the CCPA limits.

Getting Legal Help With Wage Garnishments

While the wage garnishment process can be straightforward, calculation errors or procedural mistakes can expose your business to liability for the employee’s debt and other penalties. An employer who fails to withhold wages may become liable for the employee’s entire debt. If you’re unsure about state-specific laws, dealing with multiple garnishment orders, or simply want to ensure full compliance, consulting an employment law attorney is a prudent step.