Your employees provide their time; in return, you pay them. It sounds like a simple transaction, but, as many employers know, it’s not always this straightforward. In addition to the benefits, bonuses and taxes that can complicate payroll, employers need to comply with payroll garnishment rules.
What are payroll garnishments?
When someone owes money, a court may order a payroll garnishment (also called a wage garnishment). The order itself may be called a levy or writ of garnishment.
Many Americans have debt, and a fairly common result of this is payroll garnishments. Every large- and medium-sized employer will likely deal with wage garnishment orders at some point – even small employers may receive these notices occasionally.
Employers need to comply with court and other legal orders by garnishing employees’ wages for the correct amount. However, as wage garnishment rules can be complicated, this is not always a simple process.
State and Federal Wage Garnishment Laws
Wage garnishment is heavily regulated. Among other things, the law protects individuals with wage garnishments by limiting the amount of wages that may be withheld.
The DOL says that, for most types of wage garnishment, the federal wage garnishment law caps the amount of earnings that may be garnished in any workweek or pay period. This is 25 percent of disposable earnings (the employee’s gross income minus legally required deductions) or the amount at which an employee’s disposable earnings exceed 30 times the federal minimum hourly wage (minimum wage is $7.25 per hour in 2022), whichever is less. If the employee’s disposable earnings are less than 30 times the current federal minimum wage, no amount may be garnished.
Some types of debt have different caps. For example, there is an exception when the wage garnishments are to support another person, such as a spouse or child.
- If the worker is supporting a spouse or child, up to 50 percent of disposable earnings may be garnished.
- If the worker is not supporting a spouse or child, up to 60 percent of disposable earnings may be garnished.
- If the worker is more than 12 weeks in arrears, an additional 5 percent may be garnished.
- For defaulted debts owed to the federal government and defaulted federal student loans, up to 15 percent of disposable earnings may be garnished.
Further complicating the issue, some states have additional wage garnishment laws. When state and federal laws have different requirements, employers must comply with the law which results in smaller garnishment. In other words, if a state caps wage garnishments at a lower amount, the employer must follow the state wage garnishment rules.
Other state and federal laws may create additional requirements and restrictions, including job protections for employees and limits on the types of debt that can be subject to wage garnishment.
Can you fire an employee because of wage garnishments?
If you find out that you have to garnish an employee’s wages because the individual has failed to pay a debt, you may wonder if you can just terminate the employee instead of complying with the court order.
You may be questioning the employee’s character now you know that this person hasn’t been keeping up with child support payments or whatever debt the order is for. Alternatively, you may just not want to deal with the hassle.
However, there are laws in place to protect employees. According to the DOL, Title III of the Consumer Credit Protection Act prohibits employers from terminating employees because their earnings are subject to garnishment for a single debt. Employees with earnings subject to garnishment for subsequent debts do not receive protection under Title III. However, as they may have additional protections under state law, employers need to consider the laws in their state before acting.
Child Support and Other Reasons for Wage Garnishment
People can owe money for many different reasons. However, under federal or state law, only some types of debts are eligible for wage garnishment.
Unpaid child support and spousal support are common reasons for wage garnishment. Other debts that might lead to wage garnishment include unpaid taxes, credit card debt, medical debt and student loan debt.
Some states have more restrictive laws than others. In Texas, wage garnishment is only allowed for child support, spousal support, student loan debt and unpaid taxes. If workers have ordinary debts, such as credit card debt, a debt collector cannot use wage garnishment.
Responding to a Wage Garnishment Order
Employers who receive orders for wage garnishment against employees must go through the wage garnishment process in accordance with state and federal law. Ignoring the wage garnishment, even if you believe it has been issued in error, could result in action against your company. Here are some key points to remember:
- Respond to the order citing any issues or errors. For example, if the order is for an employee who no longer works at your company or who never worked at your company, respond to clear up the matter and make sure you’re not held liable.
- Notify the employee. The employee likely already knows about the garnishment; however, a written garnishment notice is important to avoid confusion or miscommunication.
- Determine when the wage garnishment needs to start. As wage garnishments often start immediately, your HR department will need to act fast.
- Determine how much you need to withhold. You are responsible for carrying out the (sometimes complicated) calculations that determine how much you should withhold each pay period. If the worker’s income varies between pay periods, the amount of withholding may also vary. Consider both federal and state laws, keeping in mind that maximum withholding amounts can vary according to the type of debt.
- If there are multiple garnishments, determine priority and amount. The total amount will be subject to the federal and state maximums. Certain types of debt, such as child support, have priority over other types of debt.
- Determine where to send the garnished wages. It’s important to make sure you send garnished wages to the right place. This information should be included in the order.
- Keep good records. Recordkeeping is important to avoid disputes over whether you withheld the garnishments correctly and how much you withheld. Keep track of the garnishments along with the other payroll information.
- Determine whether you can recover administrative costs. Complying with the wage garnishment order may create an administrative burden. Some states allow employers to charge employees a small administrative fee.
Managing employee payroll isn’t always as simple as it seems. Many HR departments struggle to comply with tax and benefit requirements – payroll garnishment rules only add extra complications you’re not prepared to handle. Instead of trying to manage everything in-house, outsource your payroll services. Learn more about Higginbotham’s payroll services.
