This article looks at the who, the how, and the why of wage garnishment—and can help you comply with federal and state regulations.
Employers, employees, and all parties in the wage garnishment ecosystem have a range of responsibilities—to each other and to themselves.
When a person falls into debt or has other obligations, such as child support, a court may issue an order against their employer to withhold money from the person's paychecks in order to satisfy their debts and obligations. Employers have to follow the order while also complying with federal and state legal requirements. Depending upon the type of obligation, there may be other parties, such as child support agencies, that help facilitate the process and ensure that the withheld wages reach their intended recipients.
Following is a list of the main parties in the wage garnishment ecosystem.
The wage garnishment process typically starts in the courtroom. First, the court enters a judgment against an individual for a debt. Then, at the creditor's request, the court may enter a garnishment order against the individual's employer, allowing the creditor to collect the debt through the withholding of the individual's wages. A garnishment order is a legal order, so once the creditor serves the garnishment order on the employer, the employer must generally comply.
These are some of the reasons a creditor may obtain a garnishment order from a court:
A court may enter an order requiring a parent to pay child support through the withholding of their wages. This is the most common use of wage garnishment. Note: The court order is the basis for an agency-issued withholding order against the non-custodial parent's employer.
People in any income bracket may find themselves filing for bankruptcy. In the case of Chapter 13 bankruptcies, individuals can make arrangements to repay their debts within a specified period of time. Courts often order employers to withhold wages for Chapter 13 repayment plans and also appoint trustees to oversee the plans.
After obtaining a judgment debt against an individual, credit card companies (and other creditors) will often obtain a garnishment order against a person's employer to have that person's wages withheld, thus ensuring that the outstanding debt will be paid.
Get the companion infographic: The wage garnishment infographic ecosystem
Government agencies play an integral part in the wage garnishment ecosystem. Listed below are some reasons they may become involved in the process.
The IRS, state agencies and local governments can issue administrative orders to withhold wages from those who owe taxes. In some cases, the IRS allows taxpayers to enter into a voluntary payment plan, thereby avoiding the garnishment of wages.
Government agencies can order employers to withhold wages to make an employee's federal student loan payments.
Each state has a child support agency that issues income withholding orders against employers and collects child support payments. The Office of Child Support Enforcement (OCSE) oversees the federal child support program and helps state agencies with their programs.
States also perform a variety of other functions within the child support program, such as sending an employer a National Medical Support Notice if the employer is obligated to enroll an employee's child(ren) in its health insurance program.
A court order is a legal order with which employees must comply. There are additional regulatory requirements that supplement the order and, in many cases, protect those who are having their wages withheld.
The Consumer Credit Protection Act (CCPA)
The CCPA is a federal law designed to protect consumers. Title III of the CCPA is known as the Federal Wage Garnishment Law. It limits the amount of an employee's earnings that may be garnished to pay child support and most consumer debts—and it protects employees from being fired because of a single garnishment.
State laws may differ from the CCPA and federal guidelines and may offer additional protection to the employee. When the laws differ, the one more favorable to the employee must be observed.
Employers are generally required by law to comply with wage garnishment orders. It is their responsibility to withhold wages and remit payments to appropriate parties, such as child support agencies or even custodial parents or collection agencies. They are expected to know the law—regardless of how frequently it is updated—and respond to all notices, answer all inquiries, and withhold appropriate earnings.
Employers are often required to furnish, within tight timeframes, specifics about an employee's earnings and pay frequency; they may also have to provide withholding worksheets and other documentation. The required paperwork may differ from state to state and may be periodically updated or changed.
The federal government also requires employers to report all new employees to the child support program. States enter this information into a State Directory of New Hires; they also forward it to the National Directory of New Hires (which is accessed by other states and agencies). This data is critical to child support programs, as it helps them collect child support payments from employees and contractors.
If employers fail to meet these obligations, they will fall out of compliance and may become subject to judgments and penalties, which vary by state and type of wage garnishment.
Anybody can find themselves in the position of having their wages withheld, especially those who have taken on new debt or obligations after losing a job, filing for divorce, suffering an illness, or undergoing another unexpected change in lifestyle.
Some employees would prefer to meet their responsibilities on their own—without involving their employer. But if the courts determine that wages are to be withheld, the employee is subject to the order. This is true whether the individual is a full-time or a part-time employee. The rules vary if the individual is an independent contractor since these workers are not employees, and the protections granted by the federal Consumer Credit Protection Act (CCPA) do not apply.
In some cases, employees will ask to have their wages garnished to meet voluntary financial agreements with friends, relatives, or other third parties. Employers are generally not required to accommodate these kinds of requests, although many do when such voluntary agreements are made with the IRS.
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