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.
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.
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.
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.
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:
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:
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.
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.
If a person can’t settle their medical bills and the creditor succeeds in legal action, the subsequent judgment might lead to wage garnishment.
Debts stemming from credit cards, personal loans, or mortgages can culminate in wage garnishments if the creditor secures a court judgment.
The IRS wields substantial power. For unpaid taxes, it can issue a wage levy, effectively garnishing wages without requiring a court’s intervention.
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.
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:
Garnishments apply to what’s considered the employee’s disposable income and are as follows:
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.
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.
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.
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.
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.
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:
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.
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.
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.
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.
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 firstname.lastname@example.org 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.*