If you own a company or manage employees, chances are good that you’ve heard of wage garnishments. A wage garnishment is when a court order authorizes an entity to hold a certain percentage of an employee’s paycheck. An organization or individual to whom the employee owes a debt then receives that portion. Essentially, the idea is that the employee will pay the debt eventually.
Wage garnishments can also count toward debts to the IRS or state tax agencies, as well as federal non-tax debts. Wage garnishments are different than voluntary wage assignments, wherein employees willfully turn over a portion of their paycheck to pay creditors.
Who Can Garnish Wages?
Any employer tasked with garnishing wages is qualified, but you must have a court order or other legal documentation before you can start withholding pay. As a matter of courtesy, try to send your employee a memo as soon as you receive said legal documentation—though they are likely aware of the withholding, you should cover your bases quickly and efficiently.
Once you receive an order to garnish wages, you must continue withholding the employee’s pay until he or she pay the debt in full. Often, a court order will mark the end of the wage garnishment period, but it doesn’t hurt to keep a personal record on hand; similarly, you should consult with your employee in question before you lift the garnishment.
How Much Can You Garnish?
Different models apply, but the progression is fairly linear (i.e., double the weekly rate for a biweekly payment plan). Here is the maximum amount of disposable income you can garnish per week, according to a $7.25/hour minimum wage:
- If the employee makes $217.50/week or less, none
- If the employee makes more than $217.50/week but less than $290.00/week, you may garnish any payment above $217.50
- If the employee makes more than $290.00/week, a maximum of 25 percent
These numbers do not take into account extenuating circumstances, such as garnishments for child/spousal support, bankruptcy, or other state or federal tax retrieval processes.
Consequences of Noncompliance
In the event that you choose to ignore or rescind a court-ordered wage garnishment, you face several possible punitive measures, such as responsibility for completing the garnishment payment, potentially up to the entirety of the employee’s debt.
The actual severity of punishment varies from state to state—for example, Georgia and Wisconsin have systems that allow a grace period and little in the way of late payment fees—so check your state’s legislature for further clarification.
Another crucial rule to note is that you cannot fire an employee because of a single garnishment notice, though two or more independent notices are grounds for discharge. Breaking this rule will result in up to $1000 in fines, up to a year in prison, or an unfortunate combination of both.
For first-time advice or any questions regarding your state’s legislature on wage garnishment, call Abacus Payroll today at 856-667-6225.