When a wage garnishment order is served, you are put in an awkward position as an intermediary between a team member and their creditor.
But do employers have to notify employees of garnishments in the first place? While there is no federal law requiring you to notify your team members of garnishments, your state may require you to do so.
Let's dig into what wage garnishment is and what employers must do about it once they get a court order.
What Is Wage Garnishment?
Wage garnishment is a legal process where employers withhold a certain amount of an employee's earnings and send it directly to a creditor to pay off a debt.
This typically happens after a court or government agency issues an order directing you to divert a specific amount or percentage of the employee's wages to the creditor until the debt is paid off.
Types of Wage Garnishments
There are three main types of wage garnishment debts.
- Spousal or child support
- General debt from a creditor
- Government debts like student loans or unpaid taxes
Do Businesses Legally Have to Garnish Wages?
You're legally obligated to comply with the garnishment notices, and any delays could incur penalties that vary based on federal and state laws.
Does an Employer Have to Notify an Employee of Garnishment?
The federal Consumer Credit Protection Act (CCPA) doesn't require an employer to notify an employee of wage garnishment, but states have varying laws.
For example, in California, you must give the worker the appropriate forms within 10 days of getting the withholding order.
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How Do Wage Garnishments Work?
An official order from a court or other government agency will have specific details on how to go about the wage garnishment process, along with timelines and reporting requirements.
For example, it will specify the amount or percentage of the employee's disposable earnings you should withhold and where to send the funds.
The process starts when a creditor goes to court and gets permission to garnish an employee's income. Once a garnishment order is approved, you're served with the official order. These orders will have different names depending on the type of debt. They'll look something like this:
Writ of garnishment: Creditor garnishments
Income withholding order: Child support
Tax levy: Federal, state, or local tax debts
Orders are served through official channels based on your state laws. Usually, this is via certified mail or electronically through a state portal. Phone calls aren't used to deliver garnishment orders.
How Do You Handle an Employee Having Their Wages Garnished?
After receiving the order, follow all of the notice instructions and include all information requested by the order, such as details about the employee's wages and acknowledging that you'll comply. Do this within the required time set by the court order.
Then, start withholding the employee's pay immediately (or by the date noted on the order). There are maximum amount limits that restrict how much can be garnished. The garnishment notice should have a copy of a wage garnishment worksheet that matches your location and the order requirements to help you know how much money to withhold.
Bonus tip: Use software like Hourly to quickly set up wage garnishments and send them to the right agencies.
Wage Garnishment Worksheet
What If an Employee Protests a Garnishment?
If an employee disagrees with a garnishment, they must challenge it with the authorities, not their employer. They can either challenge the garnishment order in court or reach out to the lender or government agency to try to negotiate a payment plan or a settlement for a reduced amount.
You'll get an official notification confirming any changes if the garnishment is modified or removed. Continue sending the funds to the appropriate agency until you get an official notice to stop the garnishment.
What if You Fire an Employee or They Quit?
If an employee decides to quit or you fire them, notify the government agency or court that issued the garnishment notice immediately. This is a required step to ensure you aren't held responsible for a garnishment order on an employee you no longer have.
That said, it's important to note that the CCPA prohibits you from firing an employee because you have to garnish their wages for a single debt.
But it's a different story if they have garnishments for multiple debts. In such cases, Title III doesn't protect the worker from termination.
Nevertheless, some states may offer employees more protection from termination. For example, you can't fire a worker in Colorado regardless of how many wage garnishment orders you receive.
So, always get legal advice before taking any disciplinary action based on garnishments to avoid violating state or federal employment laws.
What Happens if an Employee Has Multiple Garnishment Orders?
Some garnishment orders like unpaid taxes and child support take priority regardless of when the court serves the notice. Other debts, such as defaulted loans, will be delayed or the repayment rate reduced to allow the priority garnishment orders to be filled first.
Remember, the federal and state garnishment limits don't change (we'll talk about this in the next section), only who gets to take the money first does.
How Much Can an Employer Withhold for Garnishment?
The amount an employer can withhold for garnishment depends on the reason for the garnishment, such as child support or tax levies, plus state and federal laws.
Title III of the Consumer Credit Protection Act outlines the federal limits on how much you can withhold from an employee's earnings when responding to a garnishment order.
The garnishment order you receive will also have a wage garnishment worksheet that specifies the percentage to withhold.
Let's look at some well-established federal and state garnishment limits for examples.
Child Support
For child and spousal support, the court can order you to withhold up to 50% of the worker's take-home pay (the remaining amount after mandatory deductions like social security taxes) if they're taking care of another spouse or child or up to 60% if they aren't.
You should also withhold an additional 5% if their payments are over 12 weeks late. Then, forward the funds to the appropriate party.
Ordinary Debt
If it's an ordinary debt, Title III has two limits to how much a creditor can garnish:
- You can only garnish 25% of the employee's wages after taxes and other deductions.
- You can't garnish a worker's wages if their take-home pay puts them at $217.50 or less in a weekly pay period.
This is based on a federal law that says their take-home pay must be at least 30 times the federal minimum wage every week. For 2023, that's $7.25 x 30, which equals $217.50.
But if their disposable income is over $217.50 but less than $290, you can garnish the amount that's over $217.50. And if they earn $290 or more, you can withhold a maximum of 25%.
Example
So, suppose a worker makes $300 a week after taxes and other deductions. In that case, the most a creditor can take is $75 (25% of $300) since that figure is above $290.
But if the employee made $250 per week, the creditor can only garnish $32.50 ($250 - $217.50) since they make less than $290, but more than $217.50.
However, if the worker's weekly take-home pay is below $217.50 (say $215), the creditor can't garnish any amount.
Debt Owed to Federal Government
For debts owed to federal agencies (that aren't tax debts), like student loans, you can garnish up to 15% of the employee's income.
In the case of unpaid state or federal taxes and certain bankruptcy court orders, Title III's garnishment limits don't apply.
The garnishment amount the Internal Revenue Service (IRS) can take for unpaid taxes depends on several factors, including the taxpayer's filing status, the number of dependents they claim, and the pay period.
The IRS uses a specific table and calculation method shown in Publication 1494 to determine the exempt amount protected from garnishment. The federal government can then take any amount above that calculated threshold.
State Limits on Wage Garnishment
Some state laws offer more protection against wage garnishment than federal laws. For example, Texas, North Carolina, and South Carolina all have laws against garnishing wages for ordinary debts.
If a state garnishment law differs from Title III, you must follow the law instructing you to garnish the lower amount of an employee's income.
With that in mind, let's look at some specific state garnishment limits.
What Is the New Garnishment Law in Michigan?
Michigan laws for garnishment on ordinary debts follow those of Title III. That means you can garnish 25% of an employee's take-home pay or the amount of disposable income that's more than 30 times the federal minimum wage.
Also, householders (individuals taking care of their families and other people living with them who aren't dependents) can have 60% of their weekly wages deemed exempt. However, the exemption shouldn't be lower than $15 each week. They can also deduct $2 weekly for every dependent they support who isn't their spouse.
If the employee isn't a householder, 40% of their weekly wages may be exempted, but it shouldn't go below $10 per week.
What Are the Garnishment Laws in New York?
Wage garnishment laws in New York are often referred to as income executions, and they apply to debts such as:
- Unpaid state taxes
- Alimony and child support orders
- Defaulted student loans
A creditor can garnish 10% of an employee's gross income or 25% of their take-home pay if that amount exceeds 30 times the minimum wage.
However, the state doesn't allow garnishment if the worker's take-home pay is less than 30 times the minimum wage. So part-time workers with few working hours are likely to be exempt.
For unpaid income taxes, the New York government may issue an income execution against the employee's income. The authorities will ask the worker to voluntarily pay up to 10% of their gross income each time they get paid. If they don't do this, the government will ask employers to automatically deduct that amount and send it to the state until the debt is paid in full.
How Much Can Be Garnished from Wages in Florida?
In Florida, garnishments are also called wage attachments and generally follow the wage garnishment laws in Title III.
In this case, you can take up to 25% of an employee's wages to pay off debts such as student loans. However, you can't garnish workers' wages if their take-home pay is less than 30 times the federal minimum wage.
Also, the head of a household (a person who provides more than one-half of the support for a child or other dependents) who makes under $750 per week can't have their wages garnished. And even if they make more than $750 each week, you can only garnish their salaries if they agree in writing.
That said, this exemption isn't automatic. When an employee is notified that a creditor wants to garnish their wages, they must file an affidavit with the court to get that exemption.
Understand Wage Garnishment and Avoid Legal Consequences
Even though wage garnishment orders might seem like something your employees should deal with, you could be fined if you don't follow them. That's why you need to understand the basics of how they work and have a plan for what to do when they happen.
As with any legal matter, talk to law experts as often as necessary if you have any questions, even after you've started following a wage garnishment court order.