Wage Garnishment

What is Wage Garnishment?

Wage garnishment is a legal procedure where an employer, known as the garnishee, must withhold a portion of an employee’s earnings to settle debts owed by them. It begins when the employer receives a wage garnishment notice, often initiated through court orders, which outlines the details of the required deduction.

It is worth noting that the Consumer Credit Protection Act’s Title III limits the amount that can be garnished and protects employees from being fired if their pay is garnished for only one debt. It applies to all personal earnings, including wages, salaries, commissions, bonuses, and pension income.

The timeline for wage garnishment varies depending on the debt type. While creditors usually need a court judgment, which can take months, some debts like unpaid taxes or defaulted student loans may lead to quicker garnishment.

Here’s how the wage garnishment process works:

• The creditor obtains a court order or follows the appropriate legal procedure.
• The employer and the employee receive the garnishment order.
• The employer calculates the amount to be withheld based on federal and state laws.
• The specified amount is deducted from the employee’s earnings.
• The employer sends the garnished amount to the creditor or appropriate agency.

What Types of Debts Can Lead To Wage Garnishment?

There are several types of debts that can lead to wage garnishment, which allows creditors to collect directly from an employee’s paycheck. Here are the most common reasons for wage garnishment.

Is Wage Garnishment Pre-Tax or Post-Tax?

Wage garnishment is typically deducted post-tax from an employee’s disposable earnings.

However, some exceptions exist:

• Regular garnishments (consumer debts, creditor garnishments): Post-tax
• Tax levies: Pre-tax
• Child support: Varies by state and order, but often post-tax
• Bankruptcy orders: May vary, check the specific order

How Long Can a Wage Garnishment Last?

Wage garnishment typically continues until the debt is fully paid, settled, or stopped by the court. The duration varies based on the debt type, income, and amount garnished. For most consumer debts, there’s no specific time limit.

However, federal student loans can be garnished until the debt is repaid. For tax debts, the IRS generally has 10 years to collect the debt. Some garnishments, like child support, may continue until the obligation ends.

Impact of Wage Garnishment

Wage garnishment affects both employees and employers in various ways.

For employees

• Wage garnishment can create significant financial strain due to reduced take-home pay, which impacts personal budgeting.
• Psychological stress and anxiety caused by garnishment can decrease job satisfaction and motivation.
• Financial pressures from garnishment may also strain personal relationships and limit lifestyle choices.
• Garnishment negatively impacts credit scores, as the underlying debt is typically reported to credit bureaus.

For employers

• They face administrative burdens including additional payroll processing and tracking multiple garnishments.
• Wage garnishment leads to increased costs for payroll management and potential legal fees in case of compliance issues.
• The stress experienced by employees due to garnishment may affect workplace dynamics and reduce team morale and productivity.
• Employers will have to bear the liability if garnishment orders are not properly executed.

As an employer, you can mitigate wage garnishment impacts by offering financial wellness programs, counseling services, and educational initiatives on debt and tax management. Additionally, establish clear, non-discriminatory policies for handling wage garnishments to ensure fair treatment and maintain a positive work environment.

Wage Garnishment Limits

The maximum wage garnishment amount depends on the type of debt and federal guidelines. While federal law sets general limits, some types of debt allow for higher garnishments, and state laws may impose stricter limits or offer additional protections.

Below is a summary of wage garnishment limits based on debt type.

Type of Debt	Maximum Garnishment Amount
Consumer debts	Lesser of: • 25% of disposable income, or • Amount exceeding 30 times the federal minimum wage ($217.50/week) No garnishment if weekly disposable income ≤ $217.50.
Child support/Alimony	• Up to 50% if supporting another child/spouse • Up to 60% if not supporting • Additional 5% if payments are over 12 weeks late
Federal student loans	Up to 15% of disposable income
Taxes	The IRS determines the amount based on standard deductions and the number of dependents

Note: “Disposable income” refers to earnings after mandatory deductions such as taxes and Social Security. State laws may set lower limits or offer further protections.

What Should Employers and Creditors Do for Wage Garnishments?

Both employers (garnishees) and creditors have specific duties when handling wage garnishments to ensure compliance with legal guidelines.

Employer Responsibilities

• Respond to the garnishment writ within 30 days, indicating the debtor’s employment status, pay rate, and any existing garnishments.
• Calculate and withhold the garnishable wages each pay period based on legal limits.
• Report and send the withheld amount to the creditor within 15 days of the end of the month. If multiple payments are required, consolidate them unless otherwise arranged.
• Notify the court and involved parties if the employee leaves the job or is terminated. The garnishment ends 90 days after termination unless the employee is rehired within that time.
• Penalties: Non-compliance can result in contempt charges, attorney fees, and court costs.

Creditor Responsibilities

• If an employer reports the debtor is not employed, the creditor must request a hearing within 15 days or risk dismissal of the garnishment.
• Provide a report to the debtor and employer within 15 days after receiving any garnishment payments, detailing amounts credited and the allocation method.
• Apply payments first to accrued interest, then the judgment principal, followed by attorney fees and costs.
• File a Satisfaction of Judgment with the court within 15 days of full payment.

What Are the Payroll Garnishment Rules?

Payroll garnishment rules govern how much of an employee’s wages can be legally withheld to repay debts. These regulations vary at federal and state levels. Here are the key payroll garnishment rules.

Federal Rules

• Maximum garnishment limit: For most debts, garnishment is capped at 25% of disposable earnings or the amount by which disposable earnings exceed 30 times the federal minimum wage, whichever is less. This limit also applies to the total of multiple garnishments, except for certain priority debts.
• Priority debts: Child support and alimony can be garnished at higher rates (up to 50-65%), federal student loans up to 15%, and unpaid taxes may have varying rates set by the IRS.
• Protected income: Certain types of income, like Social Security benefits, are generally exempt from garnishment.
  Notification requirement: Employers must notify employees of impending wage garnishments.

State Rules

• Varying limits and protections: States may impose lower garnishment limits or offer additional exemptions. For example, North Carolina limits garnishment to 10% of disposable earnings for most debts, while Massachusetts restricts garnishment to 15% of disposable earnings.
• Garnishment procedures: States may have specific procedures for implementing and challenging garnishments, including response requirements and timeframes for sending payments.
• Head of Household Exemptions: Some states, like Texas and Florida, offer additional protections by limiting garnishment on income earned by the head of household to ensure more income is available for supporting dependents.
• Employment protection: Many states, including California and New York, prohibit employers from firing employees due to a single wage garnishment.
• Multiple garnishment priority: States may establish their own order of priority for multiple garnishments.
• Administrative fees and interest: Some states, like Illinois and Texas, allow employers to charge fees for processing garnishments or regulate interest on garnished amounts.

What Are the Steps Involved in the Wage Garnishment Process?

The wage garnishment process involves several key steps.

1. The creditor files a lawsuit: The creditor initiates legal action against the debtor to recover the outstanding debt.
2. Court judgment: If the court rules in favor of the creditor, it issues a judgment authorizing further collection efforts.
3. Garnishment order: Based on the judgment, the creditor obtains a specific garnishment order from the court.
4. Employer notification: The garnishment order is legally served to the debtor’s employer, requiring them to withhold a portion of the employee’s wages.
5. Employee notification: The employer informs the employee about the garnishment, including details about the amount and their right to contest.
6. Withholding wages: The employer begins deducting the specified amount from the employee’s paychecks as per the order.
7. Remittance: The employer transfers the withheld funds to the designated creditor or appropriate government agency.
8. Compliance and reporting: The employer maintains accurate records, ensures ongoing compliance, and responds to any legal or administrative inquiries.
9. Termination of garnishment: The process concludes when the debt is fully repaid, the order is legally terminated, or the mandated garnishment period ends.

Record-Keeping Requirements for Wage Garnishments

Proper record-keeping is crucial for compliance and potential audits.

1. Retention period: Keep garnishment records for at least 3 years after the garnishment ends. Some states may require longer retention.

2. Information to maintain: Copy of the original garnishment order

• Calculations used to determine garnishment amounts
• Records of all payments made, including dates and amounts
• Any correspondence related to the garnishment

6. Confidentiality: Store garnishment records securely, separate from regular personnel files.

7. Accessibility: Ensure records can be easily retrieved for audits or employee inquiries.

8. Termination records: If an employee with an active garnishment leaves, document the date of termination and final garnishment payment.

9. Multiple garnishments: Keep clear records of prioritization for multiple garnishments on a single employee.

10. Software solutions: Use dedicated payroll software like Keka to manage garnishment records and ensure compliance.

Trends of Wage Garnishment

It’s important to understand the broader wage garnishment trends across industries and demographics. These trends provide valuable insights into the prevalence and patterns of wage garnishment in different sectors of the workforce.

Here are the key wage garnishment trends you should be aware of.

• Child support is the leading cause of wage garnishment, accounting for 41.5% of all cases (2013).
• 18 child support agencies, plus Guam, have mandated electronic payments for child support wage garnishment.
• Manufacturing, Transportation, and Utilities sectors have the highest garnishment rates.
• Middle-aged workers (35-44) face the highest garnishment rate at 10.5%.
• In 2019, wage garnishments for consumer debts affected over 4.5 million workers.
• The Midwest region shows the highest garnishment rates, particularly for child support and bankruptcy.
• 71% of garnished workers are male, with men responsible for 92% of child support obligations.
• Larger companies (5,000+ employees) experience higher overall garnishment rates at 9.3%.
• Workers earning $25,000 to $39,999 annually face the highest garnishment rates, reaching up to 4.6%.

Conclusion

As an employer, you must follow federal and state rules when handling wage garnishments. It affects your payroll operations and can impact workplace dynamics. Proper management can help avoid penalties and support affected employees. Additionally, establish clear policies and provide financial wellness resources for your employees. Strive to balance legal compliance with employee support to ensure smooth business operations.

FAQs

1- What is the Maximum Wage Garnishment Amount?

Federal law limits garnishment to 25% of disposable earnings (post-tax income) or the amount exceeding 30 times the federal minimum wage, whichever is less. Some debts, like child support, allow higher garnishment rates (up to 50-65%).

2- How to check the wage garnishment balance?

Contact the creditor or agency that issued the garnishment order directly, or check if they offer an online portal for balance tracking. They can provide your current balance and the estimated payoff date.

3- Are there any wages protected from garnishment?

Social Security benefits, veterans’ benefits, federal student aid, and certain retirement benefits are generally protected from garnishment, except for debts like child support or federal taxes. However, state laws may also protect additional income types.

4- What should I do if I receive a wage garnishment notice?

Review the notice carefully and verify its accuracy. Contact the issuing agency or your employer’s payroll department to understand how it will affect your paycheck. Seek legal advice if you have concerns or wish to contest the garnishment.

5- How Can I Find Out Who is Garnishing My Wages?

Check your pay stub for garnishment details. If unclear, ask your employer’s payroll department or review any related court documents. You can also check your credit report for information about the creditor garnishing your wages.