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Wage garnishments impact both employees and employers. An employee whose wages are garnished may feel stressed or embarrassed, which can lead to decreased motivation and productivity. Employers, meanwhile, may find it difficult to talk to employees about a sensitive topic like wage garnishment. They also have to follow stringent rules that can differ significantly for each type of garnishment and by state.
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What is a garnishment in payroll?
A wage garnishment is a court order or official notice directing an employer to collect funds from an employee to fulfill certain financial obligations or debts, such as child support, student loans, tax levies, etc. Payroll deductions are used for this purpose.
Types of wage garnishment
Child support is the most common wage garnishment in the United States, but it’s not the only reason an employer may receive a garnishment order. Other examples include:
- Creditor garnishments
- Student loans
- Tax levies
- Voluntary wage assignments
What are the obligations for employers?
Employers need to understand the specific obligations for each type of garnishment in every state where they do business and, often, in every state where they have employees. They must also stay current with legislative changes, ensure timely and accurate payments, and respond to courts and agencies on time and in the proper format. Failure to comply with these obligations can prove costly. Employers may be liable for as much as the employee’s entire judgment, plus fines, interest and attorney fees.
How does wage garnishment work?
When employers receive a garnishment order, they typically withhold a percentage of an employee’s compensation or a fixed dollar amount. This procedure can be highly complex because each garnishment has its own set of rules for implementation and reporting.
When to start garnishing employee wages
Employers generally must begin garnishing wages as soon as they receive an order to do so from a court or agency. Employees can contest the garnishment, but employers must continue to comply with the original order until they are told otherwise by the court or agency that issued it.
When to stop garnishing employee wages
Circumstances vary by garnishment type and state law, but there are three situations in which a garnishment may resolve:
- The employee’s debt is fulfilled
- The garnishment order is revoked
- The garnishment period ends
In most cases, the employer will receive notice from the issuing court or agency to stop garnishing wages.
How much of an employee’s wages can be garnished?
Title III of the Consumer Credit Protection Act (Title III) restricts the amount of disposable earnings that employers may garnish from employees. These limitations differ for ordinary garnishments vs. child support and alimony.
Note: Title III restrictions do not apply to certain bankruptcy court orders, debts due for state or federal taxes, or voluntary wage assignments.
Under Title III, the amount that an employer may garnish from an employee in any workweek or pay period is the lesser of:
- 25% of disposable earnings -or-
- The amount by which disposable earnings are 30 times greater than the federal minimum wage
These limitations apply no matter how many garnishment orders an employer receives for an employee. However, if specific state laws provide greater protection, the employer would take the amount most favorable to the employee.
Child support and alimony
Pursuant to Title III, employers may garnish up to 50% of disposable earnings from an employee supporting a current spouse or child who is not the subject of the support order. If the employee doesn’t meet this criteria, the rate increases to 60%. Employers may be instructed to garnish an additional five percent for support obligations over 12 weeks in arrears.
What are disposable earnings?
Disposable earnings are the amount left after the employer finishes withholding all payroll deductions required by law, such as:
- Federal, state and local income taxes
- Social Security and Medicare taxes
- State unemployment tax (where applicable)
Therefore, union dues and voluntary deductions, such as contributions to a benefit plan, are not subtracted from gross earnings when calculating garnishments.
Payroll garnishment rules by state law
States may have their own rules for disposable earnings and maximum withholding limits. If state law differs from Title III, employers must follow the law that results in the least amount of earnings garnished.
State laws governing wage garnishments may also address:
- Priority of multiple garnishments
- Response requirements
- Timeframes to send payments
- Administrative fees or interest
How to garnish wages as an employer
Proper management of wage garnishments requires specialized expertise. Employers who receive a garnishment order must be prepared to perform the following:
- Respond to the appropriate court or agency according to applicable regulations.
- Understand and apply the rules for calculating each garnishment, including the base wage amount to use in the calculation and which items to exclude.
- Make correct and timely withholdings for each type of garnishment as mandated by state laws and other applicable regulations.
- If multiple garnishments exist for the same employee, process them in the correct order of priority.
- Minimize administrative errors, which can result in a default judgment for either a portion of the employee’s debt or the total amount.
- Help address employee questions and concerns and communicate with custodial parents, collection agencies, attorneys and other creditors and payees as needed.
Frequently asked questions about wage garnishments
Can I fire an employee whose wages are being garnished?
Title III prohibits employers from firing employees based on a wage garnishment order for a single debt. Workers lose this protection, however, if they are subject to garnishments for multiple debts. In some cases, state law may provide greater protection for the employee from being discharged.
Does an employer have to honor a garnishment?
Garnishment orders must be honored as soon as received. Even if the person identified in the order no longer works for them, employers are required to notify the issuing court or agency. If they fail to comply, they may have to pay the employee’s entire judgment, plus fines, interest and attorney fees.
Do garnishments show on a pay stub?
Yes, employees can access information about any garnishments withheld from their earnings under the “deductions” or “other deductions” section of their pay stub.
Does garnishment come out before taxes?
No, wage garnishments are withheld from disposable earnings, which means all requisite taxes – income tax, Social Security tax, Medicare tax, etc. – are deducted prior to calculating garnishments.
This guide is intended to be used as a starting point in analyzing the wage garnishment definition and is not a comprehensive resource of requirements. It provides practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.