Even if you only have one employee, you are still legally required to garnish wages if you receive a court order to do so. Unfortunately, calculating the garnishment and fulfilling your legal obligation isn’t always easy. By keeping in mind a few best practices, you can ensure your company’s legal compliance and avoid common pitfalls.

How Wage Garnishment Works Under the Consumer Credit Protection Act (CCPA)

The CCPA was enacted in 1968. Its goal was to limit the excessiveness of some garnishment laws. At the time, Congress found that states with the harshest garnishment policies had the highest bankruptcy rates. With the CCPA, Congress sought to protect debtors so that they could become financially stable again.

Under the CCPA, businesses are required to garnish wages if they receive a court order telling them to do so. Some special creditors, such as the Internal Revenue Service (IRS), aren’t required to obtain a court order. Once this order is received, you are legally obligated to respond and start garnishing wages. You must calculate the correct garnishment amount and forward the funds to the creditor.

10 Best Practices for Garnishing Wages 

If your company receives a garnishment notice, the following best practices can help you calculate the garnishments and comply with applicable legal regulations.

1. Calculate Garnishments Carefully

Many of the most important requirements under the CCPA involve calculating garnishments. If the employee earns more than $290 per week, you start by subtracting taxes and Social Security. Then, you multiply the remaining disposable income by 25% to get the garnishment amount.

For anyone who earns less than 30 times the minimum wage, no garnishment can be taken. Since the minimum wage is $7.25 per hour, this works out to $217.

There’s a special calculation for when workers earn between $217 to $290 per week. For this range, you should start by deducting taxes from $290. Then, garnish whatever remains until just $217 is left.

2. Remember To Follow State Laws 

The CCPA is only one of many wage garnishment laws that apply to small businesses. In addition to this federal law, there are state-specific laws you must follow as well. The following are just a few examples of how garnishment laws vary from state to state.

• In California, only a maximum of 20% of any employee’s disposable earnings can be garnished.
• New York extended federal garnishment protections so that an amount worth 30 times the federal minimum wage or the state minimum wage is exempted from garnishment, whichever is higher.
• In Texas, garnishment can’t happen for the majority of consumer debts. Only taxes, spousal support, child support, and student loans can be collected through wage garnishment.

3. Respond To Notices 

If you are sent a notice to garnish someone’s wages, you must respond to it. You are not legally allowed to ignore it. Under the CCPA, you can become liable for the employee’s entire debt if you don’t garnish their wages.

4. Continue Garnishing Wages 

Once you start garnishing wages, you must be officially told to stop before you stop garnishing them. Sometimes, employees will tell you that they are fighting the order or that it’s getting overturned. Even if the garnishment order is overturned, you must keep following it until you are officially told to stop. 

5. Don’t Take Sides 

As a corollary to this rule, you should avoid taking sides about the garnishment. Managers often are already aware of the employee’s legal cases and debts. In many cases, they understand and are on the employee’s side. 

However, managers can’t let personal feelings sway their judgment. There are legal consequences to not garnishing wages, so companies must follow the CCPA and state regulations. 

6. Garnish Sick Pay, Vacation Pay, and Commissions

Under the law, sick pay, commissions, and vacation pay are subject to wage garnishment as well. If you have salespeople who are given a draw once a month, you must calculate the wage garnishment for their draw and their commission payments. 

7. Consult With a Payroll Professional 

When in doubt, reach out for help. A professional payroll company can handle garnishment notifications and help you determine what your obligations are under the law. Wage garnishment calculations and questions can get tricky, so it’s important to know where you can go if you need extra help.

8. Never Terminate Workers for Wage Garnishments 

Under the CCPA, you are not allowed to terminate a worker for having a wage garnishment. The goal of the CCPA is to protect workers so that they can pay off their debts. They can’t pay off the debt without a job. Even though it can be an added headache to deal with, you are legally required to keep the employee on staff.

For a single garnishment, this rule is clearcut. If there are multiple garnishments for a single employee, you are legally allowed to terminate the worker.

However, you should always consult with an employment lawyer or HR professional first. It’s also important to reach out if you want to terminate an employee who has a wage garnishment for a reason other than the garnishment. While this is legally allowed, it is definitely something you should get professional help with so that there isn’t a dispute later on. 

9. Handle Multiple Garnishments With Care

When it comes to multiple garnishments, you will need to review your state’s laws to determine the best course of action. The CCPA doesn’t say which garnishments should be prioritized. If there isn’t enough money to cover every garnishment, you’ll need to consult with your state’s laws and regulations to figure out which debt to garnish first. 

In most states, child support takes priority over other types of debt. If one type of debt must take priority, it should be garnished first. Even if other debts were already being garnished, the prioritized debt must receive precedence.

10. Contact the Garnishing Court

The garnishment notification letter will always include contact information for the garnishing court. If you have a question, call the number on the letter. They will be able to tell if more money needs to be garnished and answer any other questions you may have.

Get Support With Garnishing Employee Wages

Whether you are a small business or a multinational corporation, you are legally obligated to garnish an employee’s wages if you are ordered to. The amount you garnish, the garnishments that take priority, and other factors are closely regulated by law. Because of this, you should be extremely careful about creating your company’s policies and procedures.

To learn more about wage garnishment in your state, reach out to our team of small business payroll and HR experts today.