Understanding Wage Garnishment: Four Things To Keep In Mind

Understanding Wage Garnishment: Four things to keep in mind Let us take a step back and look at what constitutes a wage garnishment. It is not a simple pay deduction, and it cannot be done at just anyone’s request, a wage garnishment is the legal way that a percentage of an employee’s pay is deducted in order to repay a debt owed. Most of the time, this can only occur for one of these reasons:

• A court order. Through the IRS or other local or state tax collection agencies.
• Other federal agencies. Agencies for non-tax-related debts to the government such as federal student loans.
• At an employee’s voluntary agreement to have the employer pay a creditor on his or her behalf. However, this would not technically be labeled a wage garnishment, but as a voluntary wage assignment.

How Much Can Be Garnished?

The amount that can be garnished from an employee’s wages depends on how much the employee earns and what type of garnishment it is. Garnishments are subject to both prioritization (if there are multiple garnishments) and a maximum limit. The maximums are set as percentages of disposable income. Disposable income is defined as the income left over after legally required deductions have been made, such as tax withholdings, Social Security, and other withholdings mandated by law. The maximum garnishment percentages are in place for individual garnishment types as well as for the aggregate total amounts garnished. The type of garnishment with the highest priority is family support such as child support or alimony. This type of garnishment can go up to 60 percent of disposable income should there be no other children or spouse to support. However should there be children or spouses to support (separate from the garnishment), then it is capped at 50% of disposable income. These figures increase by 5 percent if the payments are more than 12 weeks behind. The next priority for garnishment are the back taxes owed. These are not subject to maximum garnishment levels. Instead, the IRS does its own calculations to determine what it assesses the individual can afford to pay, taking into account income, dependents, and the individual’s standard tax deduction amount. Next come federal student loan debts or other non-tax debts owed to the government. General non-tax debt owed to the government can be garnished up to 15 percent of disposable earnings, and the DOL tells us that “The Higher Education Act authorizes the Department of Education’s guaranty agencies to garnish up to 10% of disposable earnings to repay defaulted federal student loans.” In practice, this could mean that more than one organization could pursue these types of debts, depending on how the loan or other debt is structured. Finally, if there is any money left over, ordinary garnishments to other creditors are capped at the lesser of: 25 percent of disposable income, or an amount that leaves the employee with no less than 30 times the federal minimum wage. This means that the garnishments cannot cause the weekly wages to fall below 30 x $7.25, which is $217.50. These caps are aggregate, not separate. As such, if more than 25 percent of total disposable income is taken by a child support order, for example, no other garnishments will be able to be processed. Likewise, if 20 percent of disposable income is taken up by a child support order, then 5 percent could be left for the next garnishment, and so on. Both the priority and the cap must be taken into consideration.

Can other employees at my job find out about my debt?

There are a variety of administrative tasks involved in managing employees, from tax paperwork to setting up medical benefits. However, one task many small business owners may not be prepared to handle is a wage garnishment, when an employer withholds part of an employee’s paycheck to pay back a debt. Garnishments are usually by a court order. In a large corporation, these requests may stay within the human resources department, with supervisors and co-workers never aware of it. However, in a small or mid-size business, this buffer zone is removed, leaving employers with full knowledge of the employee’s personal business.

Employer’s Responsibility during Wage Garnishment

Not all wage garnishments are created equal. Here are some important notes to review about wage garnishments and your workers. Depending on the nature of the garnishment, the employee may or may not be aware of the garnishment. If your employee was involved in a lawsuit and a court ordered a judgment against him, that judgment will go directly to the employer. You’ll then be able to notify the employee that money will be taken out of each check to take care of the judgment. An employee may also be unaware of the garnishment if it was just issued for an unpaid debt. When you notify the employee of the garnishment, you can then provide information on how the employee can dispute the garnishment, if applicable. It is important to handle the situation as professionally as possible. Keeping it behind closed doors and storing all documents related to the garnishment out of sight of anyone else on your team.

Reasons for Wage Garnishment

There are a number of reasons a worker may have his wages garnished, with each having its own unique set of circumstances. Court judgments, student loan defaults, child support and unpaid child or spousal support are some common reasons. It’s important to remember that bad things can happen to good people, especially in the economic downturn of recent years. It’s important to realize that after the Family Support Act of 1988, the wages of non-custodial parents are often automatically withheld even if those parents aren’t delinquent. This is important because if you hire employees on a regular basis, you’ll eventually encounter multiple situations where wages are garnished on parents who have never been delinquent in paying support.

Limitations on Garnishments

There is a limit to the amount of an employee’s take-home pay that can be set aside for a garnishment. According to federal law, an employee’s pay cannot be greater than 25 percent of his take-home pay or the amount that an employee’s income exceeds 30 times the federal minimum wage. The lesser of these two items determines how much can be garnished from an employee’s pay. If garnishments exceed the lesser of those two amounts, some garnishments take priority over others. Child and spousal support orders take top priority, with as much as 60 percent possibly being garnished if the parent has no other dependents or support requirements. State and local laws dictate which garnishments take priority if child or spousal support isn’t present. When an employer receives a wage garnishment order on an employee, it can lead to many questions. But understanding the laws regarding wage garnishments can help business owners better deal with them when they occur. One final note to bear in mind: Some state laws have stricter garnishment regulations than federal laws. In those cases, the state laws must be followed. Generally speaking, whichever law allows for the employee to take home more pay is the one that must be followed.