In the United States, more than one out of 100 workers is subject to wage garnishment at any point in time. As a business owner, it is your responsibility to respond to garnishment notices if you are ordered to garnish the employee’s wages. To ensure your company’s compliance with garnishment laws, there are a few important rules and regulations you should learn about.

What Is Wage Garnishment? 

Brian Shenker, principal at Jackson Lewis P.C., discussed how wage garnishment works in a recent Mission to Grow podcast. According to Shenker, “Wage garnishment is really a court order or some type of other judicial order that requires an employer to withhold money from one of their employee’s paychecks for money that employee owes to some other creditor.”

Today, wage garnishment is governed by the Consumer Credit Protection Act (CCPA). “The purpose of the act was essentially to mitigate the sometimes very harsh effects of state garnishment laws,” Shenker says. “What Congress found was that states that had the highest rates of personal bankruptcies were also very liberal in how they permitted wage garnishment.”

In 1968, the CCPA was enacted. Today, there are limitations to the amount that can be garnished from an employee’s paycheck. Additionally, states may have specific limits and rules about wage garnishment. Because these rules can vary significantly from place to place, it’s important to consult an HR professional or employment attorney to find out which laws apply to your company.

To be legally governed by the CCPA, garnishments must be for specific purposes. For instance, wage garnishments may legally occur for child support, alimony, federal student loans, and money judgments from unpaid bills. Often, states will place additional restrictions on the types of debt that can be garnished.

Are Employers Legally Required to Garnish Wages? 

You are legally required to garnish wages when you receive a garnishment notice. Additionally, you aren’t allowed to terminate the employee for having a wage garnishment, and there are no exceptions to this rule.

If you don’t garnish wages, you may become liable for the full amount of the employee’s garnishment. Violating this law can also cause criminal offenses. For example, firing a worker for having a garnishment can lead to a year in prison. 

The Wage Garnishment Process 

Whether you are a small business or a major corporation, the wage garnishment process will generally proceed along the same steps. If you are confused about your legal requirements and how to navigate this process, you can always consult with an HR professional. 

1. The Creditor Files a Lawsuit Against the Employee 

If an employee doesn’t pay a debt, the creditor will file a lawsuit. How long this process takes can vary from state to state.

2. The Creditor Obtains a Judgment

Once the creditor wins their case, they can obtain a judgment against the debtor. Now, they can have the employee’s wages garnished until the debt is paid off.

3. The Employer Is Ordered To Garnish Wages

Next, a notice is sent to the employer. It will typically include contact information that the employer can use if they have any questions. 

As the employer, you must garnish the employee’s wages once you receive this notification. Even if the garnishment was made in error or the employee contests it, you are legally required to garnish the employee’s wages until you are ordered to stop.

4. The Employer Calculates the Maximum Amount That Can Be Withheld 

Next, the employer must calculate the maximum amount that can be withheld from each check. There are two basic methods for performing this calculation. Under the CCPA, the employer is not allowed to garnish more or less than the calculated amount.

5. The Employer Withholds the Garnishment

At this stage, the garnishment is withheld from the employee’s paycheck. Normally, there will be a line item on the check that says “garnishment.”

6. The Garnishment Is Sent Directly to the Creditor 

Finally, the garnishment must be sent to the creditor. As long as the garnishment order remains in place, the employer must continue to send the wage garnishment each pay period.

How To Calculate Wage Garnishments

As an employer, there are two methods you can use to calculate the amount of wages you must garnish. The garnishment amount should not exceed the lesser of the following two calculations.

• Method 1: 25% of the employee’s disposable earnings for the week
• Method 2: The amount that the disposable earnings exceed 30 times the minimum wage

Method 1

Disposable earnings are the amount remaining in the worker’s paycheck after federal taxes, Social Security, and state taxes have been deducted. Things like retirement contributions and union dues aren’t deducted. Once you’ve calculated the disposable income, you multiply it by 25%.

For instance, let’s assume someone earns $400 a week and is taxed $40. Because 25% of $360 is $90, the employer can garnish $90 of the check.

Method 2

The second method is used when the employee earns less than $290 or less per week. Under the CCPA, garnishments can’t be made if the disposable earnings are less than $217 per week. If the employee earns between $217 and $290, you must subtract their taxes to get the amount of their disposable income. Then, garnish whatever is left until you reach $217. 

For instance, if someone earns $280 and is taxed $35 a week, then their disposable income is $245. After subtracting $217, you are left with $28 in wages that you can garnish. 

What Should Employers Do If There Are Multiple Garnishment Orders? 

Interestingly, the CCPA doesn’t say which garnishments need to be handled first. Around 12% of workers who have a garnishment have more than one garnishment, so this is a fairly common situation to deal with.

Because there isn’t a national law regarding which garnishments to prioritize first, you should check your state’s law. Often, states will prioritize specific types of debt, such as child support. In these cases, the prioritized debt must be garnished first. This is true even if it wasn’t the first garnishment order or there isn’t enough money available for everything.

Can You Garnish Wages Without a Notice? 

You will generally need a court order before you can garnish wages. However, this may vary based on the state you’re in. Additionally, some debtors, such as the Internal Revenue Service (IRS), don’t need to have a court order to garnish wages. When in doubt, reach out to an employment lawyer or HR professional to find out the laws for different regions and debtors.

Learn More About How Wage Garnishment Works

If wage garnishments aren’t done correctly, you may be liable for the entire amount the employee owes. Because of this, it is incredibly important to make sure you’re garnishing the right amount. 

Fortunately, you don’t have to handle wage garnishments on your own. For more information and help with your company’s payroll, reach out to our team of small business payroll and HR experts today.