Wage garnishments are court orders that require a business to deduct, or garnish, an employee’s wages in order to pay a debt. When a judgment has been entered by a court or government agency, business is notified and must comply. Money is deducted from the employee’s wages and paid it directly to the debtor. Today, approximately 7% of American workers are subject to wage garnishments.
Types of wage garnishments
There are 5 main types for garnishments: unpaid child support, tax levies (state and/or federal); creditor debts; spousal support and student loan debt. Child support is the most common garnishment at 3%; followed closely by student debt/consumer loans.
The largest category, child support garnishment is ordered when a spouse has been found by the courts to be in violation of payment orders and/or has outstanding payments due. Some state and government agencies coordinate to assure payments are collected and issued.
Any federal, state or local taxes unpaid by an employee may be subject to garnishment. While states have varying laws about what can be withheld, employers must comply with any IRS levy that is received to satisfy a tax debt.
Defaults on credit card payments; loans (car, mortgage, personal, etc.) or other consumer debt may be subject to garnishment. The creditor must go through the court system to obtain a court order for collection.
Student Loan Debt
Student loans guaranteed by the federal government can be subject to garnishment if payments are not made. The US Department of Education often works with collection agencies to collect on loans. These creditors often do not have to get a state court judgment to assign wages.
Similar to child support, if the courts have determined an employee must pay spousal support, any non-payments or arrearages may be subject to wage garnishment.
Can you stop a wage garnishment?
Wage garnishments are allowed under federal and some state laws. Federal guidelines outline the amount business may deduct from an employee’s wages and provide some protection to employees in the event their wages are garnished. Generally, most states work within the parameters of these guidelines. Title III of the Consumer Credit Protection Act (CCPA), administered by the Wage and Hour Division of the Department of Labor offers guidance to employers.
How do I calculate garnishments?
Title III limits the number of wages that can be deducted in any workweek or pay period. The law allows for the lesser of 25% of disposable earnings or the amount by which disposable earnings are greater than 30 times the current federal minimum wage for non-child and spousal debts.
What is the maximum amount wages can be garnished?
Title III allows garnishment of 50% to 60% of disposable earnings for support of a current spouse or a child who is not the subject of the support order. Another 5% may be added if support payments are over 12 weeks in arrears. All garnishment amounts apply, no matter how many judgments are secured against an employee.
Some states have their own wage garnishment laws, many with lower payment requirements. Under Title III, if state law differs, the employer must observe the law that results in the smaller garnishment.
What are disposable earnings?
Disposable earnings include any wages paid to the employee after deductions have been made for federal, state and local taxes; Social Security, Medicare, and unemployment insurance taxes and mandatory contributions to state employee retirement funds. Healthcare payments, union dues and other deductions are not factors in calculating disposable income.
Can you fire an employee for requiring garnishes?
Under Title III, employers may not terminate an employee who is the subject of a single wage garnishment. Employees who are subject to multiple garnishments may be discharged under federal law, but some states prohibit terminating a staff member who has more than one garnishment.
Processing a wage garnishment order
Garnishment orders can come from a court or a government agency. Once the notice is received, business has one week to acknowledge receipt and indicate their intent to comply. Money must begin to be withheld starting with the first following paycheck and sent directly to the creditor by whatever means payroll payments are made.
Employees do have the right to challenge a garnishment in court. If they do and provide notification, employers may be required to remit money to the court or government agency to be held in escrow until the dispute is settled.
In some states, employers are allowed to charge a nominal processing fee to cover administrative costs associated with the garnishment. If an outside company processes payroll, they must be notified and will make the needed deductions and remittances.
Wage Garnishment Communication
Employers must notify staff members when a garnishment has been received and inform them when deductions will begin. It’s important to assure that only those staff members directly involved – payroll and the employee – are notified of the garnishment. Do not communicate the employee’s personal business beyond any staff member not involved, including managers and/or peers.
Wage garnishments are becoming more common, with about 1 in 14 US employees being subject to payment. Employers must assure they comply with all state or federal laws when processing garnishments for their protection as well as the employee’s.