What Is Wage Garnishment and How Does It Works?

As an HR or payroll professional, you will likely encounter salary garnishment in the course of your work. Knowing the details of wage garnishment will allow you to efficiently handle these employees while protecting your company from potential issues.

This article will provide you with an understanding of salary garnishment and the various aspects of the process. The information included comes from government guidelines and resources available for HR professionals in the field.

1.0 What is wage garnishment?

Wage garnishment involves creditors going directly into an employee's paycheck. A court or government agency can order the employer to withhold money from the employee's paycheck to go to the creditor. This occurs after obtaining a judgment on the debt.

Employers have a role in garnishment. They are responsible for following the order once they are notified of the garnishment. This process protects the rights of the employee and the creditor. Employees will receive at least the minimum wage required by the federal government.

Salary garnishment can be used for various reasons. These include but are not limited to, child support, taxes, student loans, and consumer debt. Federal government regulations will mainly govern salary garnishment.

However, there may be additional details outlined in the state in which the employer operates. HR professionals need to be aware of this as there can be consequences for ignoring the garnishment order for the employee.

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1.1 How does wage garnishment work?

Salary garnishment work starts when a creditor gets a court judgment against the debtor and then obtains a garnishment order. Here is a simple breakdown of the main steps.

• The judgment creditor takes the judgment debtor to court and wins a judgment for the money owed. This could be the result of a lawsuit being filed against the employee or if the employee defaulted on the court.

• The judgment creditor requests a writ of garnishment from the court or the government agency.

• The employer receives the garnishment order and verifies it with the court. The employer calculates the disposable earnings of the employee (the employee's earnings minus legally required deductions) and garnishes their paycheck for the employee.

• The employer sends the garnished paycheck to the judgment creditor or agency. This continues until the judgment of debt is paid in full or until the court terminates the garnishment order.

• The employee is notified of the garnishment order. Under federal law (Title III of the Consumer Credit Protection Act), garnishment is limited to a certain amount to ensure that the employee does not experience financial hardship.

1.2 Who is involved in wage garnishment?

Several parties take part in the salary garnishment process. Each has a specific role defined by law.

• The judgment debtor is the employee whose wages will be garnished.

• The judgment creditor is the individual or organization that is collecting the judgment debtor's debt.

• The employer will receive the order to begin garnishment of the employee's wages. The employer is referred to as the garnishee.

• A court will issue the order for salary garnishment and oversee the process. The court clerk will handle the paperwork for garnishment of wages.

• In some cases, federal agencies will be involved in collecting wages from employees who have unpaid debts like taxes or federal benefits. Additionally, state laws will also play a role in these cases.

2.0 Types of wage garnishments

Different types of salary garnishments exist depending on the debt. Each follows specific rules.

• Child support garnishments are very common with higher limits. Up to 50% or 60% of disposable income can be garnished with additional percentages for any arrear balances. These types of garnishments are prioritized under federal law.

• Consumer debt like credit cards and medical bills have limits placed upon them under Title III of the law limiting garnishments to the lesser of 25% of disposable income or the amount by which disposable income exceeds 30 times the federal minimum wage rate.

• Tax levies and student loans are overseen by government agencies and have their own federal rules regarding garnishments.

• Other types of garnishments include alimony, bankruptcy orders, or federal debts.

3.0 What are an employer's responsibilities during wage garnishment?

Employers must comply with valid salary garnishment orders promptly. Failure to do so can result in liability for the full debt plus penalties.

• Verify the order and notify the employee of the garnishment.

• Calculate the employee's disposable earnings after legally required deductions. Do not include tips or certain retirement program payments.

• Set up the wage withholding and send the payments to the proper party. Keep good records of the garnishment.

• Do not fire the employee due to a single debt garnishment. Labor laws protect employees from such dismissals under Title III.

• Respond to any challenges or modifications issued by the court in the salary garnishment proceedings.

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3.1 How can employees protect their wages?

Employees have options to protect part of their wages or challenge garnishment. HR can point them to resources without giving legal advice.

• File a claim of exemption if the garnishment creates hardship for you and your family. See the People's Law Library for examples of how to do this.

• Try to negotiate a plan to pay off the debt directly with the creditor or debt collector.

• Ensure that the salary garnishment is inaccurate by investigating the debt.

• For specific types of debts, such as child support, there may be ways to request a modification of the judgment.

4.0 How to implement wage garnishment

Implementing wage garnishment in payroll requires careful steps to stay compliant.

1. Acknowledge receipt of the order and update the payroll systems.

2. Calculate the garnishment using the federal minimum wage and disposable earnings.

3. Deduct the amount after priority orders, such as child support orders, if there are other orders in the employee's state.

4. Make the payments to the employee and provide them on the employee's pay stub.

5. Continue to monitor changes to the employee's status or the order.

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5.0 FAQs

Here are some FAQs for better understanding.

5.1 Can an employer refuse to garnish wages?

No. Employers cannot ignore a wage garnishment order; they must comply or pay the debt themselves. Although salary garnishments can be issued to cover any debt, such as court-ordered judgments, they must comply with these orders, or they will be required to pay the debt themselves.

5.2 Does ADP handle wage garnishments?

Yes, ADP offers services through ADP smart compliance to handle salary garnishments for their clients. They will take care of the intake, calculations, payments, and compliance with their employers. This will reduce the burden on the HR teams in the company.

5.3 When can an employer stop a garnishment?

An employer can stop when they receive notice from the court or collection agency that the debt is paid; the order has been revoked, or the employee has left the company (in some cases). Otherwise, continue the collection of efforts until the employer receives official notice of the release of the debtor from the judgment or order.