Key Takeaways
1. Wage garnishment is a legal process that requires an employer to withhold a portion of an employee’s earnings to satisfy a debt or meet a legal obligation.
2. The types of debts commonly leading to wage garnishment orders include unpaid taxes, child support, defaulted student loans, and outstanding credit cards and consumer loans.
3. There are legal limits placed on the amount of wages that can be withheld from an employee’s paycheck. These limits vary depending on the type of debt and reason for garnishment.
4. Employers have certain responsibilities when it comes to wage garnishment, which includes promptly responding to garnishment orders, accurately calculating and withholding the correct amount of wages, and informing employees accordingly.
5. Failure to comply with a wage garnishment order can leave employers at risk of costly fines or penalties
The ever-evolving nature of today’s global workforce can present various challenges for employers when it comes to managing payroll and meeting labor law requirements.
Among these challenges is wage garnishment, which places strict requirements on employers to accurately fulfill their obligations under court orders. It is essential for employers to understand the intricacies of wage garnishment to ensure compliance and avoid the risk of costly fines or penalties.
This guide aims to provide employers with a comprehensive understanding of wage garnishment, including its workings and the responsibilities it entails. By becoming familiar with this information, employers can confidently navigate the wage garnishment process, and ensure compliance with legal requirements.
What is wage garnishment?
Wage garnishment is a legal process that requires an employer to withhold a portion of an employee’s earnings to satisfy a debt or meet a legal obligation. The process is initiated by a court or a state agency such as the IRS, through a wage garnishment order sometimes called a ‘writ of garnishment’. This mandates the employer to deduct a certain percentage from the employee’s paycheck and send it to the designated agency or creditor.
Wage garnishment orders are common in the following situations:
- Unpaid taxes
- Overdue child support or alimony
- Defaulted student loans
- Defaulted credit card or consumer loans
- Outstanding medical bills
It is important for employers to understand the difference between wage garnishment and voluntary wage assignment where an employee willingly agrees with a creditor to
deduct a portion of their paycheck to repay a debt. Understanding this distinction helps employers ensure compliance with the appropriate legal requirements and obligations.
How does wage garnishment work?
The wage garnishment process typically starts within a specific time frame following the issuance of the court order. This can vary based on the state and the type of order, but is usually five to 30 business days from issuance. It is worth noting that in certain situations, the garnishment process may take effect immediately upon receipt of the order and may also require the employer to acknowledge receipt within a designated time frame.
The order provides information regarding the garnishment, including the amount to be withheld, the duration of the garnishment period, and instructions on where and how the withheld funds should be remitted. The employer is responsible for sending the withheld funds to the designated creditor or agency and a remittance schedule is often contained in the order itself, specifying regular intervals such as monthly or biweekly payments of funds.
The garnishment will continue until the debt, and any fees and interest, are fully repaid or a termination order is issued.
By carefully reviewing and acknowledging these orders promptly, employers can ensure compliance with the wage garnishment process and fulfill their obligations as outlined by the court order.
What amount of wages can be garnished?
The U.S. Department of Labor places federal limits on the amount an employer can withhold from an employee’s earnings.
Under Title III of the Consumer Credit Protection Act (CCPA), garnished amounts are withheld from an employee’s disposable earnings, which refers to their total compensation less legally mandated deductions such as income taxes and insurance contributions.
In general, the maximum weekly amount an employer can withhold is the lower of:
- 25% of the employee’s disposable earnings, or
- The amount by which their weekly income exceeds 30 times the federal minimum wage
These limits can vary depending on the type of debt and reason for garnishment. Exceptions to the limits mentioned above include the following types of debts:
- Alimony and child support: Up to 50% of an employee’s disposable earnings if they are supporting another spouse or child, otherwise up to 60%. An additional 5% can be withheld if payments are more than 12 weeks overdue.
- Federal student loans: Up to 15% of an employee’s weekly disposable income
- Unpaid taxes: The IRS will determine wage garnishments based on factors such as the employee’s standard payroll deductions, allowable exemptions, and the number of dependants they have.
Employers must ensure they understand and accurately calculate withholdings from an employee’s wages to avoid incurring fines or penalties for non-compliance.
Employer Responsibilities
In addition to fulfilling their obligations outlined in the wage garnishment order, employers are advised to take the following steps:
- Inform the employee: Employers should notify employees in writing upon receipt of the wage garnishment order including details such as the amount to be withheld, the frequency of payments, and the duration of payments. Some garnishments will provide a form for this such as Form 668 in the case of a federal levy.
- Notify HR: The company’s HR department or payroll team should be notified of the order to ensure full HR compliance — that relevant deductions are made from the employee’s wages and timely remittance of amounts sent to the creditor.
- Reporting requirements: While there are no reporting requirements under Title III of the CCPA, it’s worth noting that some authorities such as state or local jurisdictions may place reporting obligations on employers relating to wage garnishment.
- Stopping garnishments: The specific terms and conditions of the garnishment order can vary depending on the jurisdiction and the type of debt, however, wage garnishments are generally required to continue until the termination date specified in the order or until the debt is satisfied. The employer may stop garnishments once they have received official notification via a ‘Notice of Termination of Wage Garnishment Order.’
Navigating the wage garnishment process needn’t be a complicated or daunting prospect. By following the guidance set out above employers can ensure they are equipped to meet their obligations under the law and safeguard themselves from potential fines, penalties, and undue liabilities.
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Frequently Asked Questions
Wage garnishment orders are common in the following situations:
- Unpaid taxes
- Overdue child support or alimony
- Defaulted student loans
- Defaulted credit card or consumer loans
- Outstanding medical bills
Employers are generally required to continue wage garnishments until a specified date or until the debt is repaid in full. The employer may officially stop wage garnishments once they have received a ‘Notice of Termination of Wage Garnishment Order.’
