wage garnishment

Court-ordered employee wage garnishment: an employer’s guide

Receiving notice of a court-ordered wage garnishment for an employee can be overwhelming for business owners.

Wage garnishment is more common than you might imagine, and failure to properly address the situation can adversely affect your business.

The garnishment process differs from state to state, but you can follow some general guidelines to ensure everything is handled correctly.

What is wage garnishment?

Wage garnishment is a legal procedure in which a court order mandates that the employer withhold a portion of a person’s earnings to pay a financial obligation such as:

  • Child support
  • Tax debt
  • Student loans
  • Consumer or medical debt
  • In the case of bankruptcy

The court order legally requires you, as the employer, to hand over a specific portion of an employee’s paycheck and send it directly to a third party, which could include the:

  • Creditor
  • Attorney for the creditor
  • State or federal government
  • State or federal court

Federal law sets limits on the percentage of the employee’s disposable income under specified conditions. As the employer, you must also comply with any applicable state laws on wage garnishment.

How is the employer notified?

The garnishment notice or order generally comes from a court or government agency, and it could be called several different names:

  • Creditor garnishments are called a “writ of garnishment.”
  • Child support orders issued by the state are called “income withholding orders.”
  • State or federal tax debt are “tax levies.”

The court, a state agency or a federal agency like the Internal Revenue Service (IRS), will send notices to the:

  • Employer
  • Employee

Most garnishments are effective immediately upon receipt. However, depending on the type of order and their instructions, you may not be required to begin withholding for a certain number of days. The garnishment continues until:

  • The debt is paid, including (in some states) the court fees and interest
  • Or, a termination order has been issued to the employer

Depending on state law and the type of garnishment, the court order is sent by certified mail or electronically via a state portal to the employer.

How is the amount for the court-ordered wage garnishment set?

Many garnishments (child or spousal support and bankruptcy) are set at a fixed amount determined by a court.

The U.S. Department of Labor’s fact sheet on court-ordered garnishment outlines general information about the federal limits on the amount that employers may withhold from a person’s earnings in response to a garnishment order.

According to Title 3 of the U.S. Department of Labor’s Consumer Credit Protection Act, the amount an employer may set aside from a worker’s pay to satisfy a traditional debt is not more than:

  • 25% of the total salary, or;
  • 30 times the amount of the federal minimum wage

The federal government can garnish wages without going through the court for debts related to delinquent taxes or federally-backed student loans.

Wage garnishment laws vary state by state and depend upon the type of garnishment. All states allow wage garnishment for:

  • Child support
  • Alimony
  • Taxes
  • Federal student loans

State regulations for these actions against creditors are much more varied than those for child support.

For example, creditor garnishment limits range from 10% of disposable wages up to the federal limit. Some states require a percentage of gross wages. The garnishment amounts differ state to state and the employee’s state of residence. 

Because garnishments have specific forms and rules governing payroll calculations, the situation can become increasingly complex, especially if an employee has multiple garnishments. Consult legal counsel to understand that laws in the states in which you operate.

What actions must the employer take?

The court order will outline what employers must do, with specific details depending on the type of garnishment and the state laws. To avoid legal penalties, business owners must follow all instructions outlined in the court order.

What should an employer do after receiving an employee payroll garnishment notice?

  1. Review state law, ideally by working with an HR expert or legal counsel experienced in wage garnishment state laws, which can vary widely from jurisdiction to jurisdiction. There can be complexities regarding applicable regulations depending on the state from which the court issued the order, where your company is based and the state in which the employee resides.
  2. Respond promptly to the court order (if the order requires). The employer must return a statutory response form within the required amount of time (set by the court order). The form is typically sent to the employer with the garnishment order. Respond quickly to avoid the risk of a court-issued penalty.
  3. Start withholding the garnishment immediately upon receiving the garnishment notice.
  4. The employee might be able to challenge the garnishment. If so, they will have a certain number of days to contest it, depending on the law for that state. In this case, the employee should contact the agency garnishing their wages to work out any arrangements to remove or modify the garnishment. If the garnishment is removed or modified, you will receive official documentation to confirm any changes.
  5. Follow the required reporting requirements for the wage garnishment. Garnishment orders may require calculations on the garnished amount in addition to employee employment status, for example. Follow your state’s legal requirements on the reporting process, as it will depend on the type of garnishment and state where the garnishment is taking place. 
  6. If the employee quits or is terminated, immediately notify the court or government agency that issued the garnishment order of their change in employment status. Doing so will release your business from liability for the wage garnishment.
  7. If an employee is subject to more than one garnishment, the first garnishment order received is usually given the highest priority. However, child support garnishments are given priority over other debts. Work with an HR expert or legal counsel to determine how to handle multiple garnishments.

Avoid common mistakes with these best practices

  1. Respond quickly to the court order or IRS notice. Generally, an employer is obligated to start withholding the specified amount from employee paychecks and begin sending it to the creditor as soon as that notice is received.
  2. If you receive by mistake a court order to garnish the wages for an employee never employed by your business, immediately notify the court that issued the order to avoid being held liable for failure to answer.
  3. Be sure to include all pay in garnishment calculations, including wages, commissions and bonuses. The garnishment order will also include a copy of a garnishment calculation work sheet, which the employer should use to determine the amount of money withheld.
  4. Comply with federal and state laws protecting employees. Employees cannot be terminated or disciplined for having a wage garnishment, as stated in Title 3 of the U.S. Department of Labor’s Consumer Credit Protection Act.
  5. Notify the agency issuing the garnishment of any employment status changes as soon as the employee leaves your company or is terminated.
  6. Don’t stop garnishment too soon, even if it appears the balance has been paid. Often, there are penalties or interest in addition to the original debt, depending on state law. As the employer, you will receive an official notification when to stop the garnishment.

Compliance is better than the alternative – penalties and fines

Wage garnishments can cause additional work for an employer, but it’s essential to comply with and correctly implement a garnishment order. Some states allow employers to collect a fee related to the administrative costs of implementing a garnishment.

Noncompliance with a wage garnishment isn’t an option, as the penalties and fines will cost your business. It’s challenging to keep up with current rules and regulations, especially if you do business in multiple states. Making payroll mistakes is easy, especially if you don’t have much time to devote to learning how to set up your payroll process and stay in compliance.

Learn more about compliance requirements by downloading our complimentary e-book:7 most frequent HR mistakes and how to avoid them.

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