Wage Garnishment Management – A Guide for Employers

July 17, 2020 - minute read

Managing the garnishing of wages can be a challenging subject for employers. From the payroll aspects to the employee aspects, it can be a complicated matter to navigate. In this post, we’ll break down the basics on handling wage garnishment orders for an employee.

What Is Wage Garnishment?

Wage garnishment is a legal procedure that mandates an employer to withhold a portion of an employee’s wages. Depending on the type of wage garnishment, the withheld wages go directly to the entity who filed for wage garnishment against the employee.

There are numerous reasons why someone might owe money and some of the most common reasons include debt, student loans, child support, alimony, or even back taxes.

There are different types of wage garnishment and limits on what percentage of someone’s paycheck can be garnished. 

How Does Wage Garnishment Work?

A wage garnishment is a legal procedure and issued directly by a court. An official order for wage garnishment is sent directly to you, the employer. Therefore, you should notify your employee that his or her wages are being garnished.

There are federal laws surrounding how wage garnishment works. Some of the relevant points include:

  • The limit of wage garnishment is either 25 percent of an employee’s disposable earnings (meaning how much is left after all required taxes and deductions are taken out) OR
  • The quantity by which an individual’s weekly disposable earnings exceed 30x the minimum wage

The lower of these two numbers serves as the limit when it comes to garnishing someone’s wages. While the court order should have this information, make sure you run these calculations appropriately.

Types of wage garnishments

Some of the most common reasons why your employee might have his or her wages garnished include:

Creditors
If someone owes money to a private creditor and that individual cannot pay off his or her debt, the creditor may file a lawsuit. If the creditor wins the lawsuit, you could be ordered to withhold your employee's wages and send them directly to the creditor.

Child Support
Wage garnishment for child support is common. If you are garnishing an employee's wages for child support reasons, the limits might be different, so be sure to clarify this with the court.

Student Loans
Student loans present a unique situation for wage garnishment. Unlike other matters, a court order is not required to garnish someone’s wages if the loans have been issued by the government. This means you might receive an order directly from the government that you need to garnish someone's wages. You should receive 30 days' notice.

Taxes
The IRS can determine its own parameters when it comes to wage garnishment. The laws on taxes vary from state to state. Usually, the IRS delivers an advanced notice to you before they ask you to garnish an employee's wages.

These are a few of the most common types of wage garnishment. Note that the laws on wage garnishment can vary from state to state. Here are just some examples from some states.

Wage Garnishment Texas

Wage garnishment in Texas follows all relevant federal laws, leaving someone with enough money for living expenses. Most creditors in the state of Texas are not able to garnish someone’s wages at all; however, the exceptions include student loans, unpaid income taxes, alimony, and child support. More information can be found here.

Wage Garnishment Ohio

Similar to Texas, wage garnishment in Ohio follows all relevant federal laws. The limits on wage garnishment are either 25 percent of disposable earnings or $217.50 per week, whichever is lower. Garnishments can only be issued or child support, student loans that are in default, or unpaid taxes and not all of these will require a court order. Creditors do require a court order before asking you to garnish an employee's wages. More information can be found here.

Wage Garnishment New York

Wage garnishment in New York follows federal laws. A creditor in NY can garnish the lesser of :

  • 10 percent gross wages
  • 25 percent disposable wages
  • 30 times the minimum wage

If your employee does not make 30 times the minimum wage, their wages cannot be garnished. All wage garnishments (including taxes, child support, loans, and creditors) must have an income execution order from the courts of NY. More information can be found here.

Managing Wage Garnishment: Knowing the Rules

As an employer, you might be in an awkward position if you are asked to garnish an employee’s wages. First, note that wage garnishment is covered by the Federal Consumer Credit Protection Act (CCPA) and all regulations are determined and issued by the United States Department of Labor (DOL).

While the various reasons for wage garnishment were detailed above, as an employer, you will need to know how much of your employee’s paycheck to deduct. Usually, this will come as part of a court order; however, as detailed above, not all wage garnishments require a court order. In this case, you are responsible for knowing how much of your employee’s paycheck to deduct.

How to process a wage garnishment order

As an employer, you should not do anything to your employee’s wages until an order comes from a court or a notice comes from a government agency. As soon as the notice arrives, you are required to start withholding the specified amount from your employee. You need to notify the governing body that you received the order and intend to comply. Then, you need to send the withheld money directly to the creditor.

Your employee has a right to challenge any wage garnishment order in a court of law. If this happens, you should remit the garnishment and send it to the court that issued the order. They will hold the funds until they decide where they should go, usually after a hearing process.

Remember that you are prohibited from punishing, terminating, or retaliating against any employee who is the subject of a wage garnishment order purely due to the garnishment process.

Ending the Process of Wage Garnishment

Eventually, the wage garnishment process should end for most employees. While the exact procedures vary from state to state, there are a few common themes. These include:

  • The wage garnishment order came with an end date, in which case you should remember to halt the garnishment process at this time
  • You could receive a second order or notice stating that you need to terminate the wage garnishment process (remember to acknowledge receipt of this order and state your intent to comply with it)
  • Your employee’s debt is totally paid off through the garnishment process and you can stop the garnishment process

As an employer, you should read up on the wage garnishment laws in your state. You could receive compensation from the state due to the administrative expenses incurred when dealing with wage garnishments. If you have questions, be sure to read up on how to dispute wage garnishment. You should also reach out to a wage garnishment lawyer. A lawyer for wage garnishment can help you defend your rights in this situation.

Ensuring Compliance with Wage Garnishment

Managing payroll on its own can be a challenge. Many factors can impact the final paycheck of an employee and ensuring it’s done properly each and every time is paramount for any company. When it comes to wage garnishment, this is yet another added factor that needs to be addressed appropriately. Manual systems for handling payroll are not ideal. Payroll software, like EPAY Systems’ integrated HR and payroll software, take the burden off of managing many of these HR tasks and help you stay compliant. We can even handle the garnishment process for you – from start to finish. To see how EPAY can help ease your payroll burden, get a demo.

Filed Under: Compliance Payroll & Tax Wage Garnishment