Wage garnishments are a reality of payroll processing that virtually every U.S. employer must be able to master. Because wage garnishment is a legal procedure governed by state and federal mandates, employers must fully grasp its complexities in order to maintain wage and hour compliance.
Wage garnishment occurs when an employer is required to withhold a portion of an employee’s earnings, usually in response to a court order regarding a financial debt. Often, the employer is obliged to deliver those wages directly to a designated third-party—whether an ex-spouse, credit card company or the IRS.
There are several reasons why an employee’s wage could be garnished, including:
- Child support or alimony
- Personal debt, such as credit card debt
- Student loans
- State or federal taxes
How prevalent is wage garnishment? Very! Over 4 million U.S. workers—nearly 3% of the working population—have their wages garnished for consumer debt alone. This doesn’t include garnishments imposed for child support, taxes or bankruptcy.
While regulations vary according to the situation, in every case, the employer’s responsibilities begin when it receives a court-issued wage garnishment order. It’s then up to the employer to promptly follow its terms—which can be easier said than done.
Getting a Handle on Wage Garnishment Law
Like most aspects of labor compliance, wage garnishment law is complex. That said, here are some of the basic rules, as specified in Title III of the Consumer Credit Protection Act:
- Employers may not fire an employee over wage garnishment issues.
- Garnishments are limited to a certain percentage of an employee’s disposable earnings. Disposable earnings are what’s left after legally required deductions—federal, state and local taxes, plus Social Security, Medicare and unemployment taxes—are processed.
- When garnishments are enforced to support a person (i.e., child support or alimony), up to 50% of a worker’s disposable earnings may be garnished if that worker is supporting another spouse or child—or up to 60% if they are not.
- When garnishments are enforced for other reasons, the maximum amount of earnings that may be taken out is the lesser of:
- 25% of disposable earnings, or
- The amount by which disposable earnings are greater than 30 times the federal minimum wage, which sits at $7.25 per hour.
- Many states have issued mandates as well, providing additional protections for employees. For example, four states do not permit garnishments for consumer debt, and in 21 states, support-related garnishments are capped at 50%.
And that’s just the tip of the iceberg!
The Society for Human Resource Management (SHRM) explains: “Determining the disposable income subject to garnishment, establishing priorities for multiple garnishments and factoring in state laws that may differ from the CCPA are just a few of the concerns employers face when complying with wage garnishment orders.”
How to Maintain Wage Garnishment Compliance
Many employers simply don’t have the bandwidth to master the ins and outs of wage garnishment law. Fortunately, they don’t have to.
That’s because advanced payroll software can handle all of it for them, from automatically applying federal and state rules and sequencing deductions correctly to handling the transfer of funds.
In today’s workforce, wage and hour compliance is more important than ever. So, if your current payroll system isn’t managing garnishments meticulously, then maybe it’s time to find one that does, so you can take the “astonishment” out of wage garnishment.
