The term wage garnishment refers to a legal process where one party can obtain a court order to have part of an employee’s paycheck held out and redirected to satisfy a debt. If you haven’t already, you can expect to have to deal with wage garnishments at some point as an employer.
Under Title III of the Consumer Credit Protection Act, employers cannot discharge or discipline employees for a single wage garnishment. While you do have this right if the employee incurs a second wage garnishment for a different debt, laws vary between states regarding actions you can take.
Common Types of Debts Presented to Employers for Wage Garnishment
Most requests for garnishments from an employee’s paycheck result from one of these causes:
- Bankruptcy order
- Past due child support
- Past due creditor payments
- Student loan payments when the borrower defaults
- Tax levies
- Wage assignments covering a variety of debts that a trustee distributes to the parties owed
Employers must keep information about garnishments confidential from everyone except those who need the information to fulfill the company’s legal obligation. The employee also doesn’t need to explain the reason for it.
How Much Can You Legally Withhold for a Wage Garnishment?
Current federal law allows employers to withhold 25 percent of an employee’s disposable income. If the employee has multiple sources of earnings, the amount withheld can be up to 30 times the minimum wage. You must select whichever figure is lower and would present less of a financial burden to the employee.
Child support payments are one exception to this law, particularly when the parent is significantly behind providing financial support. Employers can withhold up to 50 percent of an employee’s disposable income in that situation.
Follow These Steps When Your Company Receives a Wage Garnishment Order
Upon receipt of a wage garnishment notice, your business must take prompt action to set up the deduction from the affected employee’s paycheck and redistribute it to another party. Federal law provides you with one week to mail a written confirmation that you received the garnishment notice and will comply with it. You will then need to inform your payroll processor to begin withholding the funds and place them in an account for later distribution.
Your company should not stop withholding funds if the employee challenges the wage garnishment in court. Instead, your payroll processor should remit the funds directly to the court until a judge makes a ruling. Should the employee win, the court bears responsibility for returning the garnished earnings to him or her. The court will also redistribute the funds to the creditor if the employee loses the court case.
Once the employee has satisfied the debt, your business should receive a notice to terminate wage garnishment. Sometimes the court knows the end date in advance and will include it with initial wage garnishment paperwork.
Looking for a professional payroll and human resources company to handle wage garnishment issues for you? Please contact Counting House today to learn more about all our services.