As an employer, it is your legal obligation to garnish wages if you receive a court order to do so. If you don’t respond to the notice and take action, your business may face stiff penalties. Because different states have many variations in how they handle wage garnishments, it’s important to get professional help if you receive a garnishment order.

What Is Wage Garnishment? 

Wage garnishments happen when a debtor gets a court order to garnish a worker’s paycheck for an unpaid debt. When this happens, a notice is sent to the worker’s company. In the notice, there will be details about the garnishment as well as contact information you can use if you have questions.

Typically, workers can pay up to 25% of their disposable income for a garnishment if they make 40 times the federal minimum wage. However, Title III of the Consumer Credit Protection Act (CCPA) has a special exception for child support. If you’re supporting another spouse or child, 50% of your disposable income may be garnished. If no other dependents are involved, 60% of your earnings can be garnished.

Employer Expectations Under the Consumer Credit Protection Act (CCPA)

Employers have certain rules they must follow. Besides correctly calculating the garnishment amount, you must send the garnishment to the debtor. If there are multiple garnishments involved, you’ll need to determine if your state’s laws say which debt should take precedence.

Among other rules, your company will be legally required to keep paying the employee. The law specifically states that employers aren’t allowed to fire a worker for having a wage garnishment. This rule applies to workplaces of all sizes, but it doesn’t apply in cases where there are multiple garnishments for a single employee. However, state regulations may still be involved, so you should always consult an HR professional before you terminate an employee who has a wage garnishment. 

What Are the Penalties for Not Garnishing Wages? 

Garnishing wages is a part of your legal duty as an employer. If you fail to garnish wages or violate the CCPA, civil and criminal penalties may be involved.

Civil Penalties 

Civil penalties can be significant if you don’t respond to the notice and garnish the employee’s wages. In fact, you are typically on the hook for the entirety of the employee’s debt. If the debtor was supposed to repay $5,000, you’ll be forced to pay it instead. 

In a major wage garnishment case, the Consumer Financial Protection Bureau (CFPB) made Bank of America pay $10 million for illegal garnishments. Bank of America incurred the penalty because it processed out-of-state garnishment orders illegally. The company froze accounts, garnished funds, and charged fees for orders that were processed by the wrong states. 

Processing out-of-state garnishments and failing to garnish wages aren’t the only things that can lead to civil penalties. If you fire someone for having a wage garnishment, it can result in a $1,000 fine under the CCPA. Because of this, it’s important to get professional help anytime you have questions.

Criminal Penalties

The CCPA includes criminal penalties if you terminate an employee for having a wage garnishment. It specifically states that violators can be imprisoned for up to a year.

In many states, you can be charged for different types of violations. For example, you can be charged with contempt of court or a year in prison if you don’t comply with a wage garnishment order. 

State-by-State Penalties

Each state has extremely specific penalties for wage garnishment violations. The following are just a few examples of how civil and criminal penalties vary between different states.

• Arkansas: If the employee is discharged or disciplinary action is taken against a noncustodial parent who is subject to a child support garnishment, the employer will be found in contempt of court and charged a fine of up to $50 each day. 
• California: In California, failure to withhold child support can cause the employer to be held in contempt of court. They may also become liable for the payments plus interest.
• Hawaii: An employer who discriminates against a worker is considered guilty of criminal contempt.
• Illinois: Terminating a worker because of debt can lead to a year of imprisonment and a $2,500 fine.
• New York: If an employee is terminated for having a wage garnishment in New York, the employee must be reinstated or hired, paid six weeks’ lost wages, and charged a fine of $500 for the first offense. For failing to deduct child or spousal support, you may be charged a fine that is paid to the creditor.
• Pennsylvania: In Pennsylvania, violating the worker’s rights can lead to a fine of $1,000. The employer will also have to cover damages. If the employer fails to garnish wages, they may be fined and jailed for being in contempt of court.

How To Avoid Penalties for Incorrect Wage Garnishment

As an employer, there are a few important things you can do to ensure your company is legally compliant with the CCPA and state regulations. 

• Respond to Garnishment Notifications: When you receive a garnishment notification, you are legally required to respond to it. The CCPA doesn’t make exceptions for different employer sizes, so small businesses are required to follow this law as well. 
• Calculate Garnishments Correctly: Calculating garnishments can be tricky. Since garnishing too much and too little can lead to penalties, it’s important to get a professional payroll provider to help you calculate the wage garnishment amount correctly.
• Continue Garnishing Wages Until Told Otherwise: Sometimes, employees will contest wage garnishments. Rarely, a garnishment is made in error. Even in these exceptional situations, you must keep garnishing wages until you are legally notified and told to stop.
• Perform the Correct Garnishment First: While the CCPA doesn’t say which debts should be prioritized, state laws often have specific rules about garnishment orders. 
• Don’t Terminate Workers: You aren’t allowed to terminate workers for being indebted. Federal law and many states have explicit penalties for violating this rule. If you do have to fire the worker for a different issue, consult with an employment lawyer or HR professional first.

 

How Do You Calculate the Wage Garnishment Amount?

To calculate the garnishment amount, start by subtracting federal taxes, Social Security, Medicare, and state taxes from the employee’s earnings. This figure is the employee’s disposable income. 

If the disposable income is less than 30 times the minimum wage, then you can’t garnish anything from the employee’s paycheck. When an employee earns between $217 and $290, you must calculate the disposable income. Then, you should garnish any amount remaining that is above $217. 

For workers who earn more than $290, you also start by calculating the disposable income. Then, you garnish 25% of the employee’s disposable income. However, child support is garnished at a rate of 50% if there are other children or spouses involved. When there are no additional dependents, child support can be garnished at a rate of 60%.

It’s important to remember that many states have added protections. For instance, some states set the garnishment rate lower than 25%. As a result, you should always talk to a professional about the laws in your area before garnishing someone’s wages. 

Discover Your State’s Wage Garnishment Requirements

All business types and sizes are required to garnish wages. As a business owner, it’s your duty to navigate state and federal laws so that you don’t face potential penalties. 

If you’re interested in learning about wage garnishment penalties and requirements, reach out to Asure’s team of small business HR and payroll experts today.