So … this is awkward, but there are circumstances under which you may be required to garnish your employee’s wages. In certain situations if your employee owes a debt or has another mandatory financial obligation, like child support, you may be required to garnish their wages.
That means you’ll withhold a portion of their salary or wages until the debt is paid off. Then, you’ll pay the withheld salary to the appropriate authority. (Some payroll providers can help you handle wage garnishments, which can be a huge help if you’re ever in this situation.)
What is wage garnishment?
Wage garnishment is the court-mandated withholding of an employee’s earnings from a paycheck for use toward debts. Any individual who receives wages, salaries, bonuses, commissions, pensions, or retirement plan income can have their wages garnished. Under federal regulations, wage from tips is usually not subject to garnishment.
Types of wage garnishment
Wages can be garnished for four types of debt. These wage garnishment types are listed below in order of their collection. For example, if an employee owes both child support and credit card payments, child support will be garnished first. Federal government debts are always collected before other garnishments dictated by state laws.
- Child support. Under federal law, child support is always the first wage garnishment that must be paid. Also, this law mandates automatic wage garnishment for alimony, spousal support, and other court-mandated family support payments.
- Federal debt. This wage garnishment category includes, but is not limited to, federally-backed or private student loan payments and federal tax debts owed to the IRS.
- State debt. Wage garnishment can be used to collect state tax debts. However, child support and federal debt must be settled first before state laws for garnishing wages take effect.
- Credit card debt. After federal and state debts are settled, private organizations can use wage garnishment to collect credit card debts.
After the above four categories of debts are settled, wage garnishment can be ordered for other kinds of debts, including outstanding medical bills and personal loans. Additionally, some employees may be subject to bank account garnishment as well.
How does wage garnishment work?
Wage garnishments often come with specific rules and requirements. And there are federal employer garnishment rules to comply with too.
As we mentioned above, some employees may have multiple garnishments, which can make calculating their paycheck slightly more complicated.
Common reasons for wage garnishment include failing to pay:
- Child support
- Unpaid taxes
- Student loans
- Medical bills
- Credit card debt
Are there any state laws I should follow?
Yes. Wage garnishment laws by state all vary—although not all states have additional protections or restrictions. That’s why it’s important to work with a CPA who is familiar with your state’s employer wage garnishment guidelines.
For example, a head of household in Florida who earns less than $750 per week is excluded from wage garnishment. And in North Carolina, consumer debt—like car loans, credit card debt and personal debt—can’t be garnished.
Also, some states may have specific regulations about how demand letters are handled. For wage garnishment in California, for example, you must provide the employee with the appropriate forms within 10 days of receiving the creditor’s letter.
How will I know if my employees’ wages must be garnished?
Wage garnishments are legally mandated, so you will be notified via a court order (also known as a writ of garnishment) or IRS levy if you need to garnish an employee’s wages. Most likely, Yyu’ll receive a wage garnishment letter. The letter will say that a court or government agency is requiring you to withhold part of an employee’s salary or wages until the debt is paid off.
Make sure to read this letter thoroughly, because it will spell out your responsibilities, including how much you need to withhold, when and where to send the funds, and when to start and end withholding. Once you receive orders to garnish an employee’s wages, you typically must begin doing so within seven days of receiving notice.
Most garnishments are open-ended, and you must garnish wages until you are notified to stop. The letter will also include a contact in case you have any questions. Don’t put this off—there are deadlines for taking action.
What wages should I garnish?
The wage garnishment letter you receive will outline how much of your employee’s “disposable earnings” you should garnish.
What’s disposable income? Good question. According to Title III of the Consumer Credit Protection Act (CCPA), disposable earnings are whatever income is left over after legal deductions (like the ones listed just below) but before non-required deductions, like health insurance premiums.
Legal deductions usually include:
- Federal income tax
- Social Security tax
- Medicare tax and additional Medicare tax
- State income tax
- Local income tax
The CCPA outlines garnishment laws for employers, but you’ll also need to follow your state garnishment requirements, which may have tighter rules around how much can be withheld.
Confused? Don’t be—we’ve got you.
Let’s say you’ve received a wage garnishment letter that dictates you must garnish 25% of your employee’s earnings. She makes $2,500 per paycheck and pays exactly 20% in local, state, and federal taxes. Her health insurance premiums are $300 per paycheck, and she contributes $200 to a cafeteria plan.
Here’s how to calculate the garnishments payroll for her:
|Gross paycheck amount||$2500|
|20% withheld for local, state, and federal taxes||-$500|
After taxes, the paycheck amount is $2,000. Now, you’re required to garnish 25%.
|Paycheck amount after taxes are withheld||$2000|
After taxes and the wage garnishment, the paycheck amount is $1,500. Now, you must withhold amounts for her health insurance premium and cafeteria plan.
|Paycheck amount after taxes and wage garnishments||$1500|
|Health insurance premium||-$300|
Your employee will take home $1,000.
Is there a limit to how much money can be garnished?
Yes. CCPA outlines the maximum percentage an employee’s wages can be garnished, depending on how much they make per week and the type of garnishment. These garnishment limits dictate how much creditors can take from your employees’ paychecks. For wage garnishments that are not used to support an individual or family, the lesser of the two below amounts is the withholding cap:
- 25% of disposable income
- The difference between disposable income and 30 times the federal minimum hourly wage
For wage garnishments that are used to support an individual or family, Title III limits the amount of money that can be garnished per pay period to:
- 50% of disposable income if the employee is supporting a spouse or child not covered in the court order
- 60% of disposable income if the employee has no current dependents other than those covered in the court order
For wage garnishment purposes, “disposable income” is all income left after the following legally required deductions are withheld:
- Federal tax
- State and local tax
- Employee contributions to Social Security, Medicare, and unemployment insurance taxes
- State-mandated employee retirement system contributions
Disposable income is calculated before voluntary deductions such as insurance premiums and union dues are withheld.
For some garnishment orders—like bankruptcy orders or tax debts—these restrictions may not apply:
|Employee's situation||Wage garnishment rule|
|Earns $217.50 per week or less||You can't garnish wages, regardless of what the wage garnishment order is for|
|Earns between $217.50 and $290 per week||You can garnish wages above $217.50 per week|
|Earns more than $290 per week and is under garnishment for credit card debt, medical bills, or most consumer debt||You can garnish a maximum of 25%|
|Is under garnishment for federal student loans||You can garnish a maximum of 15%|
|Is under garnishment for a federal tax debt||The amount you can garnish varies based on your employee's income and number of dependents and is determined based on IRS Publication 1494|
|Is under garnishment for child or spousal support and is currently providing for another spouse or child||You can garnish a maximum of 50%|
|Is under garnishment for child or spousal support and isnotproviding for another spouse or child||You can garnish a maximum of 60%|
|Has support payments that are more than 12 weeks in arrears||You can garnish an additional 5%|
What do I have to do as an employer?
Once you’ve read and understood the rules and requirements, you’ll need to start garnishing your employee’s paycheck.
Here’s what to do, step by step.
1. Tell your employee
Your employee probably received a letter, too, but you should still check in to make sure they know money will be coming out of their paycheck.
Keep in mind that wage garnishment can be embarrassing and stressful. Be sure to maintain your employee’s privacy, and consider providing counseling or other support to prevent the situation from taking a toll in the workplace.
2. Respond to the garnishment notice
The notice you received in the mail may ask that you complete and return a form (usually a verification of employment) providing information about your business and employee. Return it by the date requested.
3. Withhold and pay
Determine how much to withhold based on the garnishment order and federal and state laws. This can be tricky, so it’s best to have a CPA or a payroll provider handle garnishments for you. Send payments as the notice instructs. That’s usually by the next scheduled payroll date after the order was received, and usually the payment is due within just a few days of the payday.
Can I fire an employee whose wages are being garnished?
Not for that reason specifically.
An employee can’t be fired for receiving a wage garnishment order. The CCPA, however, doesn’t address or protect employees with two or more wage garnishment orders.
However, it is always a good idea to consult with a lawyer before letting an employee go.
Does an employer have to honor a garnishment?
A wage garnishment is a court order, so an employer must honor it. Additionally, an employer must acknowledge and respond to a writ of garnishment within seven days of receiving it.
There’s just one exception to complying with a writ of garnishment. If you receive a writ of garnishment for a former employee, you can contest the writ via the statutory response form included in the writ.
What happens if an employer ignores a wage garnishment order?
While the consequences for an employer that ignores a wage garnishment order vary by state, they are generally quite severe. Often, an employer that fails to acknowledge a wage garnishment order is ultimately held liable for the unpaid debt. Even in cases when a writ of garnishment is sent to the wrong employer, the employer may still be held liable for the debts if no statutory response is filed indicating the mistake.
What does my employee need to do?
Your employees’ garnishments are ordered by their creditors, not you. So, if your employee wishes to challenge the garnishments or their debt, they need to speak directly with their creditors. Additionally, if your employee has questions about Social Security garnishment rules, would like to work out a different payment plan, or wants to check the wage garnishment balance, then this also must be handled between the employee and the creditor. You, the employer, are not authorized to manage or answer any of those concerns and questions.
You may also want to advise your employee to look into bank account garnishment laws by state—although you won’t be dealing with your employees bank accounts.
If you or your employees have questions about the wage garnishment, you can check wage garnishment laws by state at your local Wage and Hour Division office or use the contact information on the wage order you receive.
Wage garnishment orders must be taken seriously
Although wage garnishment orders may seem like your employees’ business instead of yours, your business’s finances could be on the line if you ignore these orders.
Keep in mind the following key facts when dealing with wage garnishment:
- Child support and other debts owed to the United States government are prioritized in wage garnishment.
- You should tell your employee if you receive a wage garnishment order against them, and it is up to your employee to challenge any garnishment orders.
- You must respond to and comply with a writ of garnishment. The consequences for an employer that does not comply with a wage garnishment order can be severe.
- The United States Consumer Credit Protection Act (CCPA) protects employees from being fired for receiving a wage garnishment order. Notably, the CCPA only protects employees in the case of one garnishment order—its protections do not apply to employees with two or more orders.
- Wages must be garnished from disposable income, which describes all wages after compulsory deductions such as Social Security, Medicare, federal unemployment tax, and payroll taxes are withheld.
- There are federal limits to the amount of wages that can be garnished, but otherwise, all rules about garnishment and exemptions are determined by state law.
Wage garnishments may seem overwhelming to factor into your payroll operations, but you don’t have to change all that much when you get a writ of garnishment for one of your employees. Just follow all the above instructions and rules, and you’ll be right on your way toward complying with the courts and withholding the right amount of employee pay.