Employers sometimes receive a wage garnishment order in the mail that requires them to deduct money from an employee’s paycheck. It could come from a federal, state, or local agency, or from a court. This notice might come as a surprise, so let’s discuss how wage garnishment works and what to do if you receive a garnishment order for one of your employees.
What Is Wage Garnishment?
Wage garnishment is a legal procedure that requires that a person’s earnings be withheld by an employer. Many garnishments are made by court order for debts. A small claims court may order a garnishment to help a successful plaintiff collect damages from a defendant.
Federal, state, and local agencies have procedures for garnishments. The IRS can seize wages to cover overdue taxes. For non-tax debts, federal agencies can use a process called administrative wage garnishment to order an employer to withhold up to 15% of an employee’s wages. A local child welfare agency can require an employer to garnish wages for child support.
What To Expect With a Wage Garnishment Order
The wage garnishment process begins with a letter from a court or from a federal, state, or local agency.
A typical wage garnishment order will include the amount or percentage of wages to be garnished and when you must begin deductions. A wage garnishment worksheet may be attached to help you calculate the amount to deduct for each pay period. The garnishment order will also specify how and when the amounts collected from the employee must be paid to the creditor agency.
Be sure to keep wage garnishment deduction amounts separate in your business accounting system and pay them promptly to the creditor agency. If you don’t pay or pay late, you may have to pay penalties for non-payment or late payment, up to and including the full amount of the debt owed.
When the full amount of the garnishment has been deducted and paid, a satisfaction of judgment (sometimes called a release of judgment) is filed with a court or a federal or state agency. This form is signed by both parties agreeing that the debt has been paid. An employer may need to give the employee documents showing the payments were made.
Wage Garnishment Laws for Employers
The major law affecting wage garnishments is the Consumer Credit Protection Act (CCPA), which is administered by the Department of Labor’s Wage and Hour Division (WHD). Title III of the CCPA limits the amount of an employee’s earnings that may be garnished to either 25% of disposable earnings or the amount by which earnings exceed 30 times the $7.25 minimum wage, whichever is less. It also prohibits employers from firing employees if their pay is garnished for only one debt.
All 50 states also have wage garnishment laws, and 33 states, Washington, D.C., and the U.S. Virgin Islands protect more than the federal law’s minimum wages. Four states (North Carolina, Pennsylvania, South Carolina, and Texas) ban wage garnishment for consumer debts like credit card debt.
Penalties and Sanctions for Violations
Violations of wage garnishment laws usually come from complaints to the WHD by employees or former employees. An employer that violates Title III of the CCPA may be subject to actions including:
- Reinstating a discharged employee
- Paying back wages
- Restoring improperly garnished amounts
If a violation is determined to be willful, the employer may be subject to criminal prosecution, fines, or imprisonment.
Exemptions from Garnishment
Some part of an employee’s wages may be exempt from garnishment. The IRS allows part of an employee’s wages to be exempt from wage levies (seizures) based on the standard deduction and the employee’s number of dependents. Some states also allow exemptions. For example, Florida allows a head-of-family exemption that protects an employee’s disposable earnings from garnishment.
Limits and Priorities for Employee Wage Garnishment
The CCPA sets limits on the amount of earnings that can be garnished in each workweek or pay period, and states set their own limits and priorities for different types of garnishments.
Wage garnishment limits don’t apply to some bankruptcy court orders, child support, alimony, or federal or state tax debts.
The total amount of garnishment under Title III can’t be more than the lesser of two amounts: 25% of the employee’s disposable earnings or the amount by which disposable earnings are greater than 30 times the federal minimum wage.
Most types of employee earnings are included when calculating disposable earnings, such as wages, salaries, commissions, bonuses, tips, and payments from a pension plan or employee disability plan. The earnings can be paid periodically or in a lump sum. The term “disposable earnings” refers to the amount available after legally required deductions, including:
- Federal, state, and local taxes
- The employee’s share of Social Security and Medicare taxes
- The employee’s share of unemployment taxes (in applicable states)
- Contributions to state retirement systems
The definitions of disposable earnings, limits, and priorities for garnishment differ by state. California, for example, requires orders from state agencies and small claims courts to be paid first. Then IRS tax liability and spousal and child support orders less than 25% may be paid, up to the state’s limit.
The Treasury Department has an Administrative Wage Garnishment Calculator you can use to determine an employee’s disposable income for garnishments by federal agencies. To find your state’s garnishment law, search for “[state name] wage garnishment law.”
State vs. Federal Wage Garnishment Laws
If you receive a wage garnishment order from a federal agency, you must follow federal regulations. In all other cases, if federal, state, or local wage garnishment laws differ, you must follow the law that results in the smaller garnishment. You must also obey any law that prohibits the firing of an employee whose earnings have been subject to garnishment for more than one debt.
The Bottom Line
Your business may receive a wage garnishment order from a court or from a federal, state, or local agency. These orders are for a debt owed by an employee. Employees are protected by federal law against employer punishment for one garnishment, but not in the case of two or more garnishments.
You must deduct the garnishment amounts from the employee’s paychecks and pay them as directed by the order. There are limits to how much you can deduct from an employee’s gross pay in some circumstances, and states may set priorities for deductions within those limits. Don’t stop deducting until you receive official notice that the amount has been paid in full.
Frequently Asked Questions (FAQs)
How do you garnish an employee’s wages?
Since garnishment is based on a court order, you don’t need to get the employee’s approval. Just withhold the garnishment amount the same way you would withhold federal income taxes and Social Security/Medicare taxes. The wage garnishment order will typically specify the amount or percentage to be garnished. It may come with a worksheet to help you calculate the amount of withholding based on the employee’s disposable income and the state or federal garnishment limits, but you might want a licensed employment attorney to help you with this complicated calculation.
Can an employee sue me for garnishing their wages?
In general, an employee can’t fight a wage garnishment in court because these payments are court-ordered. But an employee may sue their employer for unlawfully firing or disciplining or refusing to hire them based on a wage garnishment.
To minimize confusion leading to grievances, be sure to notify the employee of the amount to be garnished and the date when garnishment will begin. Give them a copy of the garnishment notice along with any other documents and information provided by the garnishing agency.
What’s the maximum amount you can garnish from an employee’s wages?
Federal guidelines limit the amount of garnishment in a workweek or pay period to the lesser of either 25% of the employee’s disposable earnings or the amount by which an employee’s disposable earnings are greater than 30 times the federal minimum wage.
State guidelines differ on the maximum amount. If you receive a garnishment order from a federal agency, you must follow the federal rules. In other cases, where regulations differ, you must follow the rule that results in the smallest garnishment. Again, it’s a good idea to consult with an employment attorney.
What if an employee is subject to multiple garnishments?
Federal law sets a maximum amount that may be garnished in any one pay period, no matter how many garnishment orders you receive for an employee. These limits don’t apply to the amount of garnishment for certain bankruptcy court orders or to federal or state taxes, so these types of orders must be considered first.
Some states have a specific collection hierarchy for implementing wage garnishments against an employee. Federal and state taxes must usually be paid first, then civil judgments (like small claims court) and other orders, in a specific order determined by the state. See your state’s taxing agency for details on their limits and how to prioritize wage garnishments.
Finally, employees are protected by federal law against employer punishment for one garnishment, but not in the case of two or more garnishments.