Employee Wage Garnishment

Nothing can upset a small business owner's day like receiving a writ of garnishment for an employee's wages. Garnishment can be embarrassing and complicated in a small business where employees and employers know each other.

A garnishment order is a court order to withhold wages because an employee is in arrears on a debt. The most common types of garnishment orders are:

• Court judgments for civil debts
• Child support orders
• Income taxes
• Student loans

Employers are legally required to obey any orders and withhold the total amount permitted by state law. Understanding the wage garnishment process is simple, but the calculations for the garnishment amounts are tricky. This article reviews the procedure for handling employee wage garnishment and what employers must do when faced with a garnishment order.

Understanding Wage Garnishment

You may want legal advice when you receive a wage garnishment order. Regardless of the order amount, state laws limit the amount you can take out of each paycheck. To protect yourself and your employees, these are the steps you should take when you get a wage garnishment notice.

• Let your employee know you received a garnishment notice. They may have received a notice, but not always. Let them know the deduction will begin in the next pay period.
• Review your state's laws about wage garnishment. The notice should include instructions telling you what you must do. If your business has an HR department, the notice should go to them.
• The notice should include a response form. You must complete the response and return it to the court by a specific date. Do not miss that deadline.
• You must begin withholding the garnishment amount from the employee's wages as soon as you get the notice. The employee has the right to contest the garnishment. You must continue withholding the garnishment amount until you get notice of any changes.
• The court may have reporting procedures it wants you to follow during the garnishment period. The instructions should outline this process or be available on your state department of labor website.
• Where you send the garnished wages depends on the type of garnishment. The order should contain specific instructions on where to send the garnished wages. For instance, money for child support must go to the State Disbursement Unit or a similar agency. Money remitted for taxes goes to the IRS.

State and federal law requires employers to respond to wage garnishment orders, regardless of the employee's wishes or feelings. An employer is personally liable for the employee's civil debt for failing to withhold wages. They may be subject to other civil penalties. The employee can sue for penalties for failing to pay their court-ordered costs.

Employer FAQs

If the order is unclear or confusing, ask for legal or HR professionals' help immediately.

What is the maximum amount you can withhold from a paycheck?

The order will give you the amount the employee owes, but other laws limit the amount withheld from any employee's paycheck. The Consumer Credit Protection Act (CCPA) uses a formula that prevents an employer from taking the garnished amount from the paycheck before other legally required deductions.

How do I determine the amount of the withholding?

The amount withheld for garnishment depends on the reason for the garnishment. All garnishments come from an employee's disposable earnings. This is the amount left after federal and state taxes, Social Security, Medicare, and other required deductions. The CCPA allows garnishments of:

• For civil judgments: The lesser of 25% of disposable earnings, or 30 times the earnings greater than the federal minimum wage.
• For child support, alimony, or other support orders: Up to 50% of the disposable income if the employee is current in their payment, and up to 60% if they are in arrears.

What if the employee no longer works for my business?

If the employee named in the writ of garnishment doesn't work there anymore, or if the writ came to your business in error, you still have to reply to the writ. You may need an attorney to help you explain to the court that the writ no longer applies. Do not just ignore the writ or try to send it back unanswered.

What if the employee quits while I'm garnishing their wages?

It isn't uncommon for employees to quit a job to avoid paying a judgment or support order they believe is unfair. You must notify the court immediately if your employee quits or leaves for another reason.

I received an order for child support payments larger than the garnishment amount allowed. Do I take that amount out of the employee's paycheck?

Probably yes. A support order differs from a garnishment order, although people often use the terms interchangeably. The court sets the child support order according to a separate formula during the divorce process. The parents and judge calculate the amount depending on the parental incomes and the time spent with the child. Many states, such as California, automatically take child support payments directly from the parent's paycheck unless the parents agree to direct payment.

Child support withholding can be as high as 50% of the parent's monthly pay if that is the amount of their support payments. If a parent falls behind on their payments, the court may issue an order for wage garnishment.

Protections for Employees

Wage garnishment laws protect employees since their money is being taken from them. Federal and state laws offer some protection by limiting the portion of an employee's wages that can get garnished. These laws also prevent an employer from taking adverse actions against the worker.

Amount of Garnishment

As noted, the CCPA limits the percentage of an employee's wages that can get withheld. Tips and tip credits do not get included in the employee's disposable wages. Some states have lower percentages than the federal limit of 25% or prohibit employers from dropping an employee's wages below the poverty limit. Some states, such as Texas, no longer allow creditors to use wage garnishment to collect consumer debt.

Because of these protections, small business owners may want to refer wage garnishment cases to a payroll service or invest in payroll software that will handle state-specific requirements for wage garnishment.

Garnishment and Termination

Federal law prohibits firing employees just because they have a debt or judgment. Since most states now use automatic payroll withholding for child and spousal support payments, receiving a notice for garnishment of wages does not mean an employee has a bad debt.

The CCPA may require an employer who wrongfully terminates an employee for a wage garnishment to reinstate the worker and pay all back wages. Any deliberate violation of the CCPA can lead to criminal charges and fines.

Getting Legal Help

You may not need legal help for wage garnishment. But you are liable for doing it correctly, and your employees depend on you. Contact a business law attorney near you if you're unsure about the process.