If you’re running payroll, you need to understand payroll garnishments. The good news is, we have you covered. Here’s everything you need to know.
What Are Payroll Garnishments?
A payroll garnishment occurs when a court issues an order requiring an employer to withhold a certain amount from an employee’s paycheck and send it directly to the organization or person owed money, until the debt is fully paid. While different garnishment rules apply to varying types of debt, there are maximum limits to how much can be garnished from an employee’s paycheck.
How Wage Garnishments Are Issued
Most creditors are required to provide a court order to garnish wages and federal law mandates how much can be taken from an employee’s paycheck.
- The garnishment is limited to 25 percent of an employee’s disposable earnings (remaining earnings after required deductions) OR
- The quantity by which an individual’s weekly disposable earnings surpasses 30 times the minimum wage, whichever is lower.
Types of Wage Garnishments
Creditor Garnishments
If one of your employees owes money to a private creditor and is unable to pay, they can be sued. If the creditor wins the lawsuit, or receives a default judgment, they will be able to serve you with a court order to garnish your employee’s wages. Receipt of a wage garnishment order obligates you to:
- Notify your employee of the garnishment
- Withhold part of their wages
- Send the garnished money to the creditor
- Provide your employee with information to protest the garnishment
Child Support & Alimony
Up to 50% of an employee’s disposable earnings can be garnished to compensate for child support if that employee is currently supporting a spouse or child not the subject of the order (such as being remarried). In the event that an employee is not supporting another spouse or child, up to 60% of his/her earnings can be seized. If an employee is more than 12 weeks in arrears on paying child support, these rates go up to 55/65% percent respectively.
Note for employers: An employee cannot be terminated, disciplined or retaliated against because their wages are garnished for child support payments.
Student Loans
The U.S. Department of Education and other government agencies attempting to recuperate unpaid debt like a student loan have the ability to garnish up to 15% of an employee’s compensation for failure to pay a student loan. Unlike other garnishments, a lawsuit or court order is not required for this action. An employer must be notified a minimum of 30 days before the garnishment is set to commence of the following:
- Amount owed
- Instructions to obtain a copy of the loan records
- How to enter a voluntary repayment schedule
- Instructions to request a hearing on the proposed garnishment
Tax Debts
Tax authorities have their own parameters for wage garnishment. The IRS determines the amount owed based on how many dependents and employee claims and their standard deduction amount. State taxing authorities may have their own methods for determination. The IRS will deliver a notice before they begin garnishing, but keep in mind they aren’t required to get a judgment first.
Employers can face a difficult and sometimes uncomfortable task complying with wage garnishment mandates while balancing sensitivity around challenging circumstances affecting your employees. Paycor helps you navigate these complex circumstances and ensure compliance with our online payroll platform and wage garnishment processing service that creates, calculates, deducts and disburses garnishments on your behalf.
Paycor is not a legal, tax, benefit, accounting or investment advisor. All communication from Paycor should be confirmed by your company’s legal, tax, benefit, accounting or investment advisor before making any decisions.
How Paycor Can Help
At Paycor, our unique combination of technology and expertise helps our customers streamline every aspect of people management so they can focus on what they know best—their business and their mission. Read our article on how to manage garnishment processing accurately and efficiently. Or, contact our team directly so we can learn more about your needs.
Sources: Garnishmentlaws.org, NOLO.com & TheBalance.com