A garnishment is when a person’s pay is withheld by order of a court to repay debt. Specific debt types may be eligible for garnishment, and minimum and maximum amounts can be withheld.
As an employer, you must comply with all garnishment requests and start withholding payment as soon as you receive the order (or writ of garnishment). However, the process isn’t always easy, so knowing best practices is important.
Garnishment Process
When an employer receives a garnishment order, they must carefully read it to understand the rules and requirements. They must then decide how much to withhold and whom to send payments. They must also keep track of the amount being withheld so they only garnish what an employee is entitled to.
Many employers work with a payroll service that handles garnishments and deductions for them. The amount that can be garnished varies by state and type of debt. It could be a set sum of money or a portion of the worker’s discretionary income.
Disposable income includes salaries, bonuses, commissions and other forms of compensation that make up the employee’s wages. However, it does not have voluntary deductions that employees choose to make, such as medical insurance or union dues. If an employee wants to fight the garnishment in court or negotiate with their creditor to lower the amount being taken from them, they must speak directly with that individual.
Employees must also understand that garnishments are temporary and can be released once the debt is paid or other arrangements are made. Managing wage garnishments can be complicated, but employers must follow the rules and regulations in each state they operate in.
A trusted payroll service can help with this, and they should stay up-to-date on all legislative changes. It can ensure that they comply with the rules, minimize administrative errors and communicate properly with courts, creditors and collection agencies.
Garnishment Orders
Most people have debts, and in many cases, creditors can request your company withhold a percentage of an employee’s wages to cover their outstanding bills. Whether you’re dealing with a garnishment for unpaid child support, student loans, back taxes, or other obligations, every case is different. Its rules include how to process the deductions and where payments are sent.
You must understand the laws in each state where your company does business, actively monitor legislation and changes and respond to courts or agencies as required. When you receive a garnishment order, the first step is to notify your affected employees. Though they may already know their situation, providing written notice of the process can help clarify and communicate how deductions will start and how much will be withheld.
Depending on the case, you may also be responsible for complicated calculations determining how much to withhold each pay period. For example, if an employee’s wages fluctuate between pay periods, you’ll need to consider this and withhold the amount required by law.
Keeping all documentation related to wage garnishment in a secure location is another best practice. This information should only be accessible to HR and payroll department staff and should never influence promotional or disciplinary decisions. Additionally, you should ensure that any garnishment information is not shared with anyone outside the organization.
Wage garnishment is something other than what employers look forward to handling, and it certainly makes payroll management more complex. However, it’s important to be aware of these processes and be prepared for them to occur in your workplace. Start by reviewing your state’s laws and identifying any relevant requirements you must follow to stay compliant.
These requirements include notifying employees of the garnishment, calculating the amount to be withheld from each employee’s paycheck, and following specific remittance instructions or deadlines. Depending on the type of garnishment, you may also be required to provide your employees with calculation worksheets to help them understand how much money will be taken from their paychecks each pay period and how the amounts are determined.
Garnishment Limits
An employer must withhold a certain percentage of an employee’s pay each week and transfer it directly to the business or individual due to the money under a garnishment order that a court may issue. These orders can come from various sources, including local, state and federal agencies and private creditors. Different limitations apply based on the type of debt.
Federal law generally limits how much of an employee’s paycheck can be garnished, and these limitations vary by state. The amount of an employee’s paycheck that can be garnished is based on their disposable earnings, which is the amount left after legally mandated deductions are removed.
Federal and state income taxes, Social Security, and the employee’s share of state unemployment insurance are included in these deductions. Deductions not required by law, such as voluntary wage assignments, union dues, health and life insurance and retirement contributions, are not considered part of disposable earnings. Tip income is usually also exempt from garnishment.
The varying state rules about garnishment can make managing payroll challenging for many employers. Understanding these rules and ensuring that garnishments are processed properly is important.
Employees can become stressed by the process and may experience anxiety when they receive a smaller paycheck than usual. Communicating with employees privately to explain the process and answer any questions is a good idea.