What Does HR Need to Know About Wage Garnishments?
One day, your employee Greg comes into your office, angry and confused. He asks you why he was paid $200 less than usual. You ask Greg to take a look at his itemized pay stub, and he finds that $200 in garnishments have been withheld from his earnings. He explains that he hasn’t bought any parsley or chili pepper with the company credit card this month. How do you explain this deduction to Greg? Should Greg already know why the amount was withheld? As the employer, or the “garnishee”, what role do you play?
Let’s start with the basics.
What Is a Wage Garnishment?
A wage garnishment is very different from a food garnishment. The U.S. Department of Labor defines a wage garnishment as “any legal or equitable procedure through which some portion of a person’s earnings is required to be withheld for the payment of a debt.” As a last resort, a portion of an employee’s earnings can be automatically held back to pay off a debt.
A garnishment is generally applied in cases where a debt account is at least six months past due and the debtor has made no effort to set up a payment plan.
The IRS does not have to go through the court and can directly order employers to garnish wages. However, creditors must first file a lawsuit and win the judgment of the lawsuit. Following the win of the judgment, the creditor can get court permission to access funds from the debtor’s paycheck. Finally, this court order is sent to the employer and put in the hands of the HR professional.
Most garnishments are made by court order. For example, Greg’s garnishment came from his overdue student loans. The loan holder must have gotten a court order to have the loans withheld from Greg’s disposable earnings, or the “amount of earnings left after legally required deductions are made.”
Legally required deductions include the following:
- Federal, state and local taxes
- Social Security
- State Unemployment Insurance tax
- Retirement withholdings required by law
Wage garnishments can only be deducted from disposable earnings.
Most types of wages can be garnished. That includes salaries, hourly wages, commissions, bonuses, profit shares, workers’ compensation, and more.
Common Kinds of Wage Garnishments
A creditor may seek a wage garnishment for the following debts:
- Child support
- Federal student loans
- Unpaid federal or state income taxes
- Outstanding medical bills
- Credit card and all other debt
A wage garnishment does not include any amount of money employees voluntarily have withheld from their pay stubs, such as federal taxes agreed to when completing Form W-4 or insurance premiums. However, if employees do not pay their taxes, the IRS can order a wage garnishment.
Limitations on Wage Garnishments
Title III of The Consumer Credit Protection Act (CCPA) sets a maximum on the amount of earnings that may be garnished in any pay period.
The weekly garnishment amount may not exceed the lesser of these two figures:
- 25% of the employee’s disposable income
- The amount by which an employee’s earnings are “greater than 30 times the federal minimum wage”
With the current minimum wage at $7.25 an hour, there can be no garnishment if an employee’s weekly disposable earnings are $217.50 ($7.25 x 30) or less.
Let’s say your payroll operates on a weekly pay period and Greg’s weekly disposable income is $1,200. If 25% of Greg’s disposable income is $300, the creditor can only garnish up to $217.50 because that is the lower of the two numbers.
However, these limitations do not apply to all cases. The IRS or a creditor is allowed to cross the 25% or 30 times the federal minimum wage rule when dealing with child support, alimony, bankruptcy, or any state or federal tax.
For example, up to 50% of a worker’s “disposable earnings can be garnished for support payments if the worker is supporting another spouse or child, or up to 60% if the worker is not” (SHRM).
It’s also important to keep in mind that state laws may set lower limits. If you receive an order requesting more than 25% or 30 times the minimum wage, or if you are unsure about the accuracy of a garnishment order, it is best to work with an employment attorney to ensure your employee is not being “over-garnished”.
If pay periods are more than a week long, you must use multiples of the weekly restrictions to calculate the maximum amounts that may be garnished. So, for a biweekly pay period, a creditor can garnish up to $435. If, however, Greg’s weekly disposable income was say $800, the creditor can only garnish up to $200 (25%) per pay period because $200 is less than $217.50.
The U.S. Department of Labor provides a chart simplifying these calculations for biweekly, semimonthly, and monthly pay periods.
HR Guidelines for Wage Garnishments
Discussing wage garnishments with your employee can be extremely uncomfortable as they can often feel that their personal problems are now exposed. It can be embarrassing for your employer to discover that you have not paid your child support or other debts. Child support is typically the most sensitive topic among wage garnishment conversations.
As the HR professional, your job is merely to provide the facts.
It is your duty to make sure your employee knows a garnishment order has arrived from court. You can say something like, “Hey, I received this notice today in the mail. Starting next paycheck, it will go into effect.” The court order will specify the terms of what your employer (the person or organization paying the debtor) owes.
It’s important to remember that you are obligated to take garnishments out of wages. It is illegal to refuse a court order. Be firm and professional, but make it clear that you are just doing your job.
A wage garnishment is typically not a surprise because a debtor will have received multiple warnings and been given many opportunities to dispute the debt. The garnishment will begin five to 30 business days after the court sends final notices to the employee and their bank. A wage garnishment is always a creditor’s last resort so it is highly improbable that your employee will be unaware of their debt.
The Consumer Credit Protection Act (CCPA)
The Consumer Credit Protection Act (CCPA) protects employees from being let go or fired by their employers because their wages have been garnished for any one debt. Employers also cannot take any disciplinary action toward an employee because their wages are subject to garnishment.
However, the CCPA does not protect employees from being discharged for any subsequent debts. Legally, an employer can terminate an employee without penalty if the employee receives a wage garnishment for more than one debt.
If you decide to terminate employees with subsequent garnishments, make sure your practices are consistent. If they aren’t, an employee can argue that your actions are discriminatory.
According to SHRM, employers that violate the CCPA are subject to “a lawsuit by the employee, as well as a $1,000 fine and perhaps even jail time for the person who willfully violates the order.”
The IRS is not subject to the federal wage garnishment law and can take more of the employee’s income than an ordinary creditor. However, there is still a limit on how much of an employee’s paycheck the IRS can levy. This is different for every taxpayer, as outlined in Publication 1494.
How does BerniePortal Calculate Wage Garnishments?
Using an HRIS makes withholding garnishments easy for both you and the employee. Once the deduction is added, your payroll system will automatically withhold the wage garnishment every pay period. Using our payroll feature, employees can download a PDF of their pay stubs, which include an itemized list. This saves you the hassle of having to find and transmit the information yourself.
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