If your employee owes a debt or has another mandatory financial obligation, like child support, you may be required to garnish their wages.
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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.)
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.
Some employees may even have multiple garnishments, which can make calculating their paycheck 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 that’s familiar with your state’s employer wage garnishment guidelines.
For example, heads of household in Florida who earn less than $750 per week are excluded from garnishment. And in North Carolina, consumer debt—like car loans, credit card debt and personal debt—can’t be garnished.
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 have been garnished?
You’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. That includes how much you need to withhold, when and where to send the funds, and when to start and end withholding.
Most garnishments are open-ended, and you must garnish wages until you are notified to stop. It 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.
According to Title III of the Consumer Credit Protection Act (CCPA), disposable earnings are whatever income is left over after legal deductions but before nonrequired deductions, like health insurance premiums. 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.
Legal deductions usually include:
- Federal income tax
- Social Security tax
- Medicare tax and additional Medicare tax
- State income tax
- Local income tax
Confused? Don’t be. Let’s say you’ve received a wage garnishment letter for 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:
- Initial paycheck: $2,500
- Federal, state, and local taxes: $500
- Disposable earnings after federal, state, and local taxes: $2,000
- Garnishment: $500 (25% of $2,000)
- Earnings after taxes and garnishment: $1,500
- Nonrequired deductions: $500
- Net paycheck: $1,000
CCPA also 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 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.
1. Tell your employee
They should have been notified, too, but check in to make sure they know money will be coming out of their paycheck. This wage garnishment notice template can help you write your own version.
Keep in mind that wage garnishment can be embarrassing and stressful. Help maintain their 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 may ask you to 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 to 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.
What do my employees need to do?
Your employees’ garnishments are ordered by their creditors, not you. So they’ll need to talk to them if they would like to challenge the debt, look into Social Security garnishment rules, ask how to check their wage garnishment balance, or work out a different payment plan.
Your employee also might want to look into bank account garnishment laws by state, although you won’t be dealing with their personal 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.