An Employer’s Guide to Wage Garnishment
Navigating the labyrinth that is wage garnishment can be extremely daunting for employers and for good reason. It’s complex and fraught with pitfalls.
Here’s everything you need to know about it.
What Is Wage Garnishment?
We all have financial obligations. Whether that’s paying off a credit card, a loan, or other type of financial lending, or a different type of financial responsibility such as paying child support.
In most cases, regular payments are made, but when they aren’t and the courts need to step in, this is when wages must be garnished.
At its core, wages garnishment is a legal tool that allows creditors to claim debts directly from an individual’s earnings.
It’s an enforcement action wherein a part of an employee’s wages is withheld by their employer to satisfy a debt obligation. This process is sanctioned either by court orders or through other legal or equitable procedures.
Wage Garnishment in California
California employers are only required to comply with wage garnishments for consumer debt if the creditor has obtained a court order.
If the employer receives the wage garnishment from the creditor and the creditor hasn’t filed a lawsuit and received a judgment against the employee, the employer doesn’t have to comply.
California has strict rules around what an employer can withhold from an employee’s paycheck, so if they comply with a garnishment for consumer debt that is not court-ordered, they could be in violation of California employment law.
How Does It Affect Employers?
For employers, the onset of a check garnishment order means treading carefully in several places. There are administrative and legal procedures that must be followed to the letter, and care must be taken when communicating the situation to the employee in question.
Every garnishment order requires meticulous record-keeping, processing, and timely remittance of the withheld amounts. This results in additional administrative work and resources, which could become a strain on some businesses – particularly if it is a smaller business.
Additionally, employers carry a legal obligation to comply with the order. This position can often be delicate, given the legal nuances involved but the upshot is that failure to comply can result in the employer becoming responsible for the debt.
Finally, the employer-employee dynamic must be delicately navigated. It’s imperative for employers to be empathetic and supportive to the employee while also upholding their legal responsibilities to the situation. It’s often a fine line to tread and requires exceptional interpersonal skills to manage.
What Are the Legal Requirements for Wage Garnishment?
At its core, wage garnishment is a legal obligation that must be adhered to. In a nutshell, here’s what you need to be aware of:
- Mandatory Compliance: Once you receive a legitimate wage garnishment order, compliance isn’t optional and you most certainly cannot ignore it. You are legally obligated to execute the order until the debt is fully paid or the order is otherwise terminated.
- Limits on Garnishments: Federal law under the Consumer Credit Protection Act (CCPA) caps the amount of an individual’s earnings that may be garnished. This safeguards employees from extreme financial hardship. We’ll talk about this more, later in the article.
- Protection for Employees: The CCPA prohibits employers from firing an employee whose wages are garnished for a singular debt. However, protections might not extend to those with multiple wage garnishments.
What Types of Debts Are Eligible for Wage Garnishment?
Although wage garnishment is considered a last resort effort to recoup unpaid debt and financial obligations, it is also surprisingly common. If you haven’t experienced the process yet, you will do at some point.
In 2016, The ADP produced a report that found that 7% of the 12 million employees assessed had had their wages garnished in 2016. The percentage increased to 10.2% among those aged 35 to 44.
The most common types of wage garnishment were:
- Child support
- Consumer debts
- Student loans
- Tax levies
Student Loans Not in Default
Even before a student loan falls into default, federal agencies might decide to intervene if they are not confident the individual is capable or willing to make timely payments.
For federally backed student loans, the government can garnish wage payments without a court order if repayments start to lag.
Child and Spousal Support
These are considered high-priority garnishments because it is the welfare of other individuals at stake.
Defaulting on a legally mandated child or spousal support can lead courts to order garnishments, sometimes even surpassing the usual federal limits.
Medical Bills
If a person can’t settle their medical bills and the creditor succeeds in legal action, the subsequent judgment might lead to wage garnishment.
Creditors
Debts stemming from credit cards, personal loans, or mortgages can culminate in wage garnishments if the creditor secures a court judgment.
Taxes Owed to the IRS
The IRS wields substantial power. For unpaid taxes, it can issue a wage levy, effectively garnishing wages without requiring a court’s intervention.
What Steps Should Employers Take When They Receive a Notice?
Remember, it’s crucial to follow the legal process and comply with everything necessary to ensure the employee’s wages are garnished. Unfortunately, it’s never a pleasant process, but it’s part of the reality that comes with running a business and employing workers.
How Should They Legally Respond?
After receiving a garnishment order, the first step is to verify that the garnishment order is authentic and legit. There are plenty of scams and unscrupulous debtors out there that will use wage garnishment as an opportunity to get money out of unsuspecting people.
Once validated, there are six key legal processes and rules to follow:
- You must file a response seven days after the end of the employee’s current pay period or 30 days after the garnishment summons is received. The garnishment order will stipulate which timeframe. The response includes:
- Calculating the amount, the wages will be garnished
- Notify the employee of the garnishment order and their right to file an exemption claim
- File the garnishment response with the court
- A garnishment must be calculated for each pay period because wages and withholdings may differ each month, plus the employee may apply for and receive an exemption
- If an employee receives multiple orders to garnish your wages, child and spousal support garnishment always takes priority
- You cannot demote or fire an employee on account of the garnishment.
- If you receive a bankruptcy stay for the employee, you must cease all wage garnishments with immediate effect and inform the creditors attorney
- If you fail to complete the garnishment process correctly, you will need to get a lawyer on board to help you out
How Much of an Employee’s Wages Can Be Garnished?
Garnishments apply to what’s considered the employee’s disposable income and are as follows:
- Credit cards, personal loans, medical and consumer debts:
- If weekly disposable income is $290 or more, a maximum of 25% is taken
- Between $289.99 and $217.51, the amount above $217.51 can be taken as garnishment
- No garnishment check can be applied to a weekly disposable income that’s lower than $217.50
- Child and spousal support:
- Up to 60% of weekly disposable income
- Up to 50% if you are also supporting an additional child or spouse
- Student loans:
- Up to 15% of weekly disposable income
- Taxes:
- There is no set amount but the Internal Revenue Service will determine what you pay based on the number of dependents and standard deductions.
- Garnishment rates for taxes vary from state to state
How Do Employers Ensure Compliance with State/Federal Laws?
To ensure you are compliant with wage garnishment laws, you must familiarize yourself with the Consumer Credit Protection Act’s (CCPA) federal guidelines and the Federal Wage Garnishment Law.
State laws can also vary with some being more generous than others. Therefore, consult wage garnishment law in your state to ensure you are remaining compliant.
If you are unsure, make sure you consult with your attorney who will be able to guide you through the process.
How to Calculate/Deduct Amounts from a Paycheck
Using specialized accounting software will go a long way toward ensuring you are deducting the correct amount. However, if this isn’t possible, there are online calculators that can automatically determine the amount once you have entered the required information.
The wage garnishment worksheet from the Fiscal Treasury can also be used to work it out.
When Can an Employer Refuse to Comply?
There aren’t many instances where you can refuse to comply with a garnishment order.
However, you might have grounds to contest or refuse a garnishment if multiple orders for a single employee push garnishments beyond federal or state limits.
If you experience this and aren’t too clear on whether you should comply or not, consult with an expert to see how the land lies.
What Are the Penalties for Not Complying with an Order?
If you fail to meet the outlined deadlines, fail to file the correct paperwork, or fail to garnish an employee’s wages as required, then you – the employer – can become solely liable for the full amount owed.
This means your business is now in debt and must repay it in full within a specified time period.
For small businesses, this can be devastating financially, so as you can imagine, it’s imperative to garnish your employee’s wages, even though they may beg you not to.
How Do Employers Appeal a Wage Garnishment Order?
In most cases, appealing is off the cards, but if you believe that a garnishment order is unjust or incorrect, it’s advisable to consult legal counsel to explore avenues for appeal.
One thing is for sure. This is a tricky and complex process, so if you’re not a legal expert, don’t even go there. Call your attorney to discover what the options are.
What Are Strategies for Managing the Costs of Wage Garnishment?
Wage garnishment takes up time and resources that you may not have available. When dealing with multiple garnishment orders, the cost to your business can start to soar.
This is where outsourcing this task can become highly beneficial. For example, at Finvisor, we can provide financial and payroll experts for this very task. We don’t lock you into lengthy or costly contracts – you only pay for the resources and expertise that you need.
Doing this has multiple benefits:
- You save time and resources for your own business
- Entrusting wage garnishment to an expert reduces errors and ensures you remain compliant
- It costs less overall.
How to Comply with Tax Implications
It’s important to understand that the garnished portion of an employee’s wages remains taxable. Therefore, you must deduct taxes based on the gross income, factoring in the garnished amount.
What Are Some Ways to Help Employees Affected by Garnishment?
No one wants to hear that their hard-earned wages are about to be garnished. Therefore, take the time to break the news in a gentle and understanding manner.
Remain emphatic throughout the process and ensure the employee has all the information they need to fully understand what is about to happen.
Let your employees know that they are able to talk to you about garnished wages whenever needed and that you will provide as much information and reassurance as you possibly can.
What Are the Rights of Employees Subject to Garnishment?
It’s crucial that you uphold and inform the employee of their rights, such as receiving proper notice, their ability to challenge garnishment wages, and that they will not face employment repercussions (being fired, etc.) because of their garnishment order.
Offering financial counseling or facilitating flexible payment plans can provide relief to affected employees and ease the blow somewhat.
What Happens If the Employee Fails to Make Payments?
Failure to make the necessary garnishment payments means you are non-compliant with the garnishment order. In
Wage garnishment, while complex, is navigable with diligence, empathy, and informed strategies. By upholding legal obligations while supporting affected employees, employers can strike a harmonious balance in managing these situations.
Who Do I Contact About Wage Garnishment?
If you’ve read through all of this and are now dreading the day a garnishment order arrives on your desk, we’re here to reassure you that you can go through the process smoothly and easily with Finvisor by your side.
We provide outsourced financial, payroll, and HR professionals to many businesses just like yours, and our team is well-versed on exactly what do do with a garnishment order.
Let Finvisor take on the extra work while you can rest assured your full compliance will be adhered to. To find out more, call us for a chat today.
To learn more about what we do, or to request a quote, contact us at hello@finvisor.com or 415-416-6682. We’re here to help you navigate deferred revenue journal entries so you can make the most of your assets!
*This blog does not constitute solicitation or provision of legal advice and does not establish an attorney-client relationship. This blog should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction.*
- Last Modified
- February 1, 2024
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