A wage garnishment has a simple definition — when an employee owes a debt, the employer is required by court or government agency order to withhold a certain amount from that employee's paycheck until that debt is satisfied. Pretty easy? The simplicity stops there.

Wage garnishments are not the same across the board, from the type of garnishment to the law that applies to the garnishment. These differences can make these withholdings complex, administratively burdensome and compliance nightmares. According to Corporate Compliance Insights, if an employer fails to comply with a wage garnishment court order (often referred to as a "writ of garnishment"), they may become liable for the full amount of the employee's judgment debt.

4 Common Misconceptions about Wage Garnishments

1. Finance leaders must respond to a writ of garnishment, even if it is issued to your organization in error

As reported by Forbes, it's inconsequential if the writ names the employee's former employer or a wrong employer altogether. The writ was issued to your organization and orders you to withhold money from your employee's compensation. If you don't or if you fail to properly respond, your business could become liable for the full amount of the amount of the employee's judgment debt.

2. All garnishments are calculated the same

Again, this is untrue. Forbes reports that businesses must understand which laws -- state, federal or a combination thereof -- apply to the particular garnishment as this allows the business to calculate the correct withholding amount and apply other rules affecting the withholding. With few exceptions, if the garnishment order originated out-of-state, and that state's court has personal jurisdiction over the employer and has issued proper service, as reported by the National Law Review, the garnishment order is valid and enforceable over the wages owed. Personal jurisdiction may include conducting business in that state, employing citizens of that state or maintaining bank accounts in that state.

Additionally, federal law puts parameters on the amount of money withheld from an employee's compensation for garnishment, in that no more than 25 percent of an employee's disposable earnings may be withheld. However, some states won't allow more than 10 percent of an employee's disposable earnings to be withheld. Further, some states put the maximum withholding line at the federal poverty level. Forbes also reports that other states — such as North Carolina, Pennsylvania, South Carolina and Texas — prohibit garnishments for consumer debt collections.

Further, exceptions to these general calculation rules exist for child support, tax liens and bankruptcy withholdings. The bottom line is that wage garnishments differ, depending upon what type of garnishment and what type garnishment you've received and which law or laws apply. The complexity of calculations, the applicable tax laws, remitting payments and more can easily run an employer into noncompliance, which is a place employers can't afford to be.

3. All wage garnishments have equal processing power

This is also not true. Child support garnishments take precedence over all other garnishments. Newer garnishments take a back seat to older garnishments. Finance leaders must understand how to process multiple garnishments for employees facing this situation.

4. Wage garnishments only affect the employee

This is not true. As stated above, if an employer fails to comply with a garnishment write, that employer may become liable for the full amount of the employee's judgment debt. As reported by Workforce, small missteps along the way can expose the employer to potential liability. For example, employers expose themselves to financial and legal risk when "they incorrectly garnish an employee's wages, fail to file in a timely way, file a defective response, fail to follow specific requirements when sending payments, or make other missteps with a garnishment," notes Workforce. In addition to being potentially liable for the entire judgment debt, the employer may be sued by the employee, or face other costs or penalties not anticipated.

Thus, compliance with any wage garnishment, no matter how large or small, or if it is the organization's first or 100th garnishment, is vital. Finance leaders are encouraged to ensure that prudent practices and a comprehensive approach are in place and reviewed on at least an annual basis to help achieve compliance with these complex withholdings requirements.

Stay up-to-date on the latest human capital management insights for finance leaders: subscribe to our monthly e-newsletter.

Tags: compliance wage garnishments employment regulations