Table of Contents
Table of Contents
What Is Wage Garnishment?
A wage garnishment is a way to collect money when someone owes debt. An employer will be ordered to withhold money from the employee’s paycheck and pay it to whom the debt is owed. Wage garnishments can come from an employer to its own employee, but most wage garnishments are court ordered based on debt being owed to a government agency.
How Does Wage Garnishment Work?
As stated, most wage garnishments come through a legal order by the court or a government agency. Wage garnishments can be needed due to unpaid taxes, overdue child support, outstanding medical bills and more. The court will mail the order to the employer via the address that has been listed with the government. The employee has received multiple letters in the mail before this, such as the court notice, and will also receive a notice of the garnishment, so the company is not required to inform the employee.
How to Implement Wage Garnishment
There are several steps required to implement a wage garnishment.
Step 1: Read the Garnishment Order
Carefully read through the garnishment order to understand all the details. You’ll want to know all the details before you get started. Details will include when to start, how to calculate the amount, who to pay the money to, when to end, etc.
Step 2: Calculate the Amount
Employers often have to set up the garnishment amount. Depending on who the order is coming from, the amounts requested will vary. Sometimes it is a set amount, other times it is a percentage of the employee’s paycheck. Follow the instructions on the order to calculate the amount.
Step 3: Find a Maximum
Garnishment orders might list a maximum amount. Once an employee’s garnished wages total that amount, garnishment can stop. Most HRIS systems can set a maximum amount and an employee’s wages won’t be garnished over that amount.
Step 4: Look for a Start Date
For most garnishments, you need to start withholding from the employee as soon as you receive the order. Some garnishments may have a start date anywhere from 5 to 30 days from the order. Follow what’s on the order, but if there isn’t a start date you should start with the next paycheck.
Step 5: Look for an End Date
Some garnishment orders list an end date. Make sure you read the full order and set the correct end date. An end date is firm, whether the debt is paid in full or not. Like a maximum amount, many HRIS systems can also set up an end date for wage garnishments.
Step 6: Watch for Continued Orders
If there isn’t a maximum amount or an end date, the agency that sent the order will be in charge of letting you know when to stop the garnishment. This often comes through another order, informing the employer of when to terminate the wage garnishment.
What Can Be Garnished?
Now, let’s take a look at which types of pay can be garnished.
Only disposable earnings can be garnished. Disposable earnings are earnings that are left after all the legally required deductions. To calculate disposable earnings, subtract all the legally required deductions (federal, state, and local taxes) from the gross amount.
Net pay is not the same as disposable earnings. Disposable earnings do not count deductions such as health or life insurance and retirement plans. When calculating disposable earnings, only subtract the legally required deductions stated above.
Types of Wages
The majority of wages can be garnished, such as:
Wages That Are Exempt From Garnishments
Tip income is normally exempt from garnishments. Anything paid directly to the employee, like tips, is not subject to garnishment. If the tips were to be paid to the employer and the employer then distributes them to the employees, they would be subject to garnishment.
What Employers Must Know About Wage Garnishment
Wage garnishments can be intimidating when you first get them. You might be uncertain how to calculate the amount or when to stop garnishing an employee’s wages. Continue reading to learn some more important things about wage garnishments.
The employer needs to be extremely careful to not garnish too much of an employee’s wages. No garnishment can push an employee below the minimum wage.
According to the Department of Labor, an employee can be garnished up to 25% of disposable earnings, or the amount by which the worker’s disposable income is greater than 30 times the federal minimum wage (whichever is the lesser). In specific cases, such as child support, more than the minimum can be garnished.
An employee could be subject to more than one garnishment at a time. Priority is given to child support, spousal support, and past due taxes, in that order. Everything else is followed according to when the orders were received, starting with the one received first.
If the amount of garnishments is over the maximum amount discussed above, the later orders will have to wait until the first orders are complete.
Track Wage Garnishments
It is always best practice to track the wage garnishments. If you do not have a reliable HRIS system to help you with this, set reminders in your notes or on your calendar. Check that the correct amount is being taken out, the end date is correct, etc. Employer errors can result in fees for the company.
No Action Against the Employee
An employer cannot take action against an employee for wage garnishments. Terminating an employee or punishing them for wage garnishment is illegal.
Check State Laws
Each state has different laws in regards to wage garnishments. In some states, employers could be eligible for a nominal processing fee. In others, employers can receive reimbursement for the administrative burden that comes with wage garnishments.
To help understand your state’s laws, take a look at Fair Debt Collection’s article.
When Should Employers Garnish Employee Wages?
There are multiple reasons an employer might garnish an employee’s wages. If an employer wants to garnish their employees’ wages, it needs to be part of a signed employment contract. A company cannot garnish wages and pay it to themselves unless the employee has signed an agreement that discloses the process.
Whenever there is a court order to garnish employee wages, an employer must comply. If an employer does not garnish employee wages within the date listed on the order, they could become and remain liable for the full debt owed.
Damage to Company Property
If an employee damages company property, they can pay back the value of the property in full or through garnishment. An employment contract needs to state that this type of garnishment can and will happen, and the employee must have signed the contract.
Paying Back Advances
Many employers will give employees advances, with the amount being garnished over multiple paychecks. The amounts and dates are agreed upon by the employee and employer. Often there is a form that is filled out and both parties sign.
There are more reasons a wage might be garnished, such as a till shortage. Remember that for an employer to garnish wages, it needs to be declared in the signed employment contract.
Questions You’ve Asked Us About Wage Garnishment
Can employers fire a worker because of garnished wages?
The short answer is no. Firing an employee because of garnished wages is illegal. The laws vary state by state. In certain states, an employee can be fired for wages being garnished two or more times, either simultaneously or consecutively. Play it safe and do not fire an employee for garnished wages, unless you are certain your state law allows you to under your circumstances.
How will I be notified if an employee's wages need to be garnished?
Orders most often come through mail. A letter with the order and instructions will be addressed to the company. The garnishment order will arrive at the address the company files through.
Katie is currently studying at BYU, with a HRM major and Statistics minor. She works there as an HR research assistant and also works as an HR Generalist at a local company, and both jobs provide her with a wide variety of experiences. Katie’s passion lies in HR and People Analytics, where she can discover and use data to help everyone understand and improve the workplace for a universal benefit.