Garnishing wages, which refers to the partial withholding of a person's earnings to help satisfy payment of a debt, usually resulting from a court order, is a complicated issue that employers must be prepared to handle from time to time. According to a survey by ADP that aggregated anonymous data from over 13 million employees from 2011 through 2013, just over 7 percent of employees had their wages garnished. And depending on the field they worked in, some employers were more likely than others to have to navigate those channels.
According to the study, nearly 50 percent of companies in the manufacturing field employ people who have some of their wages garnished. That number falls down to 23 percent for companies in finance, in professional and business services, and education and health services.
Per the terms of Title III of the Consumer Credit Protection Act, wage garnishment covers all disposable earnings, including bonuses, commissions, payments from pensions and retirement plans — although tips are exempt. As much as 25 percent of an employee's salary could be garnished. In some cases, including certain cases of child support and unpaid taxes, an employee could be subject to a higher percentage of wage garnishment.
Although garnished wages are not widespread and appear to be routine and fairly straightforward, managing the process can cause a business problems if handled incorrectly. Timeliness is of the essence, and all employers should ensure they file the required paperwork within the stipulated time frames. Another thing to be aware of is that if the business fails to garnish the correct amount, then the business may be held responsible for the full amount of the outstanding debt, in addition to other costly penalties.
Small startups that are just at the point of being incorporated — and especially sole proprietors — are particularly vulnerable. For sole proprietors, because the lines between personal and business are more likely to be blurred than at a larger corporation, obtaining sound legal advice to navigate these waters from the start is important.
Wage garnishment is regulated by Title III of the Consumer Credit Protection Act; individual states' additional garnishment laws may vary. One of Title III's provisions is that an employer cannot terminate an employee because they are subject to wage garnishment. However, this provision does not apply to an employee's whose earnings are subject to separate garnishments for two or more debts.
The Equal Opportunity Employment Commission advises against inquiring about applicants' financial information, which includes whether they are subject to garnishment, and taking any adverse action against them because of it. Employers who take adverse employment action against employees because they are subject to garnishment orders may face costly fines and penalties.
If you are facing such a situation, you can find handbooks to help you through the process. The American Payroll Association provides extensive guidance regarding federal and local laws on the subject. When handled with care, garnishing wages does not need to be an administrative burden for your company. Of course, when in doubt, seek the advice of a legal professional.