Thanks to the Consumer Credit Protection Act (CCPA), employees have some relief from debtors. Back when this act was passed in 1968, states with high wage garnishment rates also had higher levels of personal bankruptcies. According to the CCPA, businesses must calculate the maximum amount the garnishment can be. If the employee only earns 30 times the federal minimum wage, nothing can be garnished from their paycheck.

What Is Wage Garnishment? 

A wage garnishment is a legal procedure where a court requires an employer to withhold some of the employee’s earnings to repay their debts. In addition to federal laws, there are many state laws about how much you are allowed to garnish from an employee’s paycheck. 

The Consumer Credit Protection Act (CCPA)

The CCPA is the major act governing how wages are garnished. It is designed to protect workers by limiting how much can be garnished. In the CCPA, wage garnishment calculations and legal terms are carefully defined. 

For instance, the CCPA defines disposable income as the amount that is left after you subtract state taxes, federal taxes, and Social Security from someone’s paycheck. Then, the worker’s disposable income is used to calculate the maximum amount that can be garnished.

While the CCPA includes many protections, it doesn’t discuss every detail of wage garnishments. How to handle multiple garnishments is mostly legislated by states. For example, many states require employers to prioritize child support over other kinds of garnishments.

Your Responsibility as an Employer 

“Being served with a wage garnishment, especially for a small or mid-sized business, is often something they’ve never dealt with before and something they do not want to deal with. But under the law, you may have to,” says Brian Shenker, principal at Jackson Lewis P.C. in a Mission to Grow interview on “Garnishment: What Every Small Business Owner Needs to Know to Protect Themselves.”

Whether you have two employees or 200, you are legally required to garnish wages. If you receive a court order to garnish wages, you must respond to the order and garnish the worker’s wages. You aren’t allowed to ignore the order. Additionally, you are required to continue garnishing wages until you are notified that the debt has been repaid. 

Interestingly, the CCPA doesn’t require you to notify employees about the wage garnishment. Your state or local laws may have specific rules about notifications. It’s also important to remember that, although notifications aren’t legally required, it’s a good idea to reach out to your workers to let them know that money will be withdrawn from their paychecks before it happens. 

Employees Are Protected from Termination

The entire mission of the CCPA is to protect employees from excessive garnishments. As a part of these employee protections, the CCPA prohibits terminating a worker who has a wage garnishment. Even if you’re a two-person company and the wage garnishment is a hardship for you, the CCPA still requires you to carry it out.

The law doesn’t extend this protection to workers who have multiple garnishments. However, it’s important to discuss any terminations with an HR professional or employment lawyer before terminating anyone to avoid unintentionally violating the law.

When Are You Required to Garnish Wages?

You are required to garnish wages if you are ordered to do so. Often, employers will already know what is going on, and they may even be on the employee’s side in a divorce, custody battle, or debt dispute. However, it doesn’t matter whether the garnishment is fair or not. Until ordered to do otherwise, you are legally required to garnish wages.

How To Calculate the Wage Garnishment Amount

To ensure you’re in compliance with the CCPA and state laws, you must carefully calculate the correct wage garnishment amount. The federal government has a wage garnishment calculator you can use. You can also use the following wage garnishment calculations to determine the correct withholding amount.

It’s important to keep in mind that some states have added restrictions on how much you can take out. Because of this, you should always consult with an HR and payroll expert before garnishing wages.

Option 1: Less Than 30 Times Minimum Wage

Before you garnish any wages, you should start by calculating the employee’s disposable income. This is their gross income minus their tax payment, like Medicare, federal taxes, and Social Security.

However, you aren’t allowed to garnish any wages if the employee earns less than 30 times the minimum wage. This means employees who make less than $217 a week cannot have their wages garnished under the CCPA.

Option 2: Between $217 and $290

Workers who earn between $217 and $290 are in a special situation. To calculate the wage garnishment, start by figuring out the worker’s disposable income. Then, subtract $217 from this figure. The resulting sum is the maximum amount you can garnish. 

This is how this wage garnishment calculation might look in practice. 

1. The worker earns $270 per week.
2. They are taxed $43.
3. The employee has a disposable income of $227. 
4. You can garnish $10 from their paycheck.

Option 3: More Than 40 Times the Minimum Wage

Finally, workers who earn more than 40 times the minimum wage are garnished at a rate of 25%. For instance, the following steps show how much an employee who earns $430 per week would be garnished. 

1. The employee earns $430 per week.
2. They are taxed $65.
3. Their disposable income is $365. 
4. The disposable income is multiplied by $365 to get a garnishment rate of $91.25.

If there are multiple garnishments, the total cannot be more than 25%. In many cases, there isn’t enough income available to cover all of the garnishments. As a result, you must prioritize specific garnishments. Because the CCPA doesn’t dictate which garnishment type comes first, you should consult with an HR professional to figure out the laws for your state.

What Are the Penalties for Calculating Garnishments Incorrectly?

The penalties for not calculating wage garnishments correctly are incredibly strict. If you fail to garnish the employee’s wages, you could end up on the hook for the entirety of their debt. 

According to Shenker, “There have been courts that have held that the employer was responsible for the entire judgment against the employee. There’s a Georgia case where the employer responded to the garnishment. But then when they applied it, they gave wrong information when they responded and they misapplied how they garnished the wages. The employer was held responsible for the full $10,000 judgment against the employee.”

In fact, you can even face criminal charges for not following the CCPA. For example, the CCPA says you can be charged with up to a year in prison if you terminate an employee for having a wage garnishment.

Learn More About Calculating Wage Garnishment Rates

Calculating wage garnishment rates doesn’t have to be difficult. With a professional payroll provider, you can get software and professional expertise for navigating the wage garnishment calculation. Besides simplifying your payroll, this assistance can reduce your company’s legal liability. 

To learn more about the best practices for wage garnishment, reach out to our team of small business HR and payroll experts today.