Garnishments

April 13, 2006

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A garnishment is a court order letting you know that a legal claim has been made against an employee's wages. The order generally will have arisen from a legal proceeding filed by someone to whom your employee owes money.

The most common reason for garnishment is that the worker owes child support payments to a divorced spouse; in many states everyone who is paying child support will automatically have their paycheck garnished. But other creditors may obtain garnishments against your employee as well; if your employee is unable to pay the amount, the court will order that the amount be deducted from the employee's wages. In effect, you, as the employer, will be responsible for collecting the money from the employee's pay and getting it to the court for payment of the debt.

How does a garnishment happen? In many cases, your involvement in a garnishment case will begin not with receipt of a garnishment order but with receipt of what is usually called a notice of garnishment.

Here's how the situation usually unfolds: a creditor wants to collect a debt from your employee. The creditor finds out that the employee may be working for you and sends you a notice of garnishment telling you of the debt and asking you to confirm that the employee works for you.

What should you do if you get a garnishment order? First and foremost, contact an attorney right away! Writs of garnishment are serious business. In some states, you have only a certain amount of time to respond (sometimes a matter of days) and if you do not honor the writ and begin withholding, you can be held responsible for the entire debt of the employee!

To save yourself a little time and money, do these things before you see the attorney so that you get the most for your legal dollar:

Examine the notice to determine what it demands of you — make sure that you understand its terms.
Note how long you have to comply with the order.
Note how much needs to be taken out of each check and when it must be remitted.
Make sure that you understand where the money is to be sent.
Note what kinds of records must accompany the payment — many state laws require a listing of who the remittance is for, the Social Security number, and other information.
Note what to do if the employee doesn't work for you anymore.
Notify the employee that you have received a garnishment and that you will comply with it — make sure that the employee understands that you will be deducting money from each paycheck.
Change your payroll routine and records so that the amount will be deducted from each paycheck.
If there is more than one garnishment for a single employee, make sure that the garnishments combined do not exceed the legal maximum that can be deducted, and if they do, how the garnishments should be prioritized and prorated (this is sometimes mandated by state law, as well).

How much can be garnished? Generally, you can deduct garnishments from wages without violating the minimum wage rules because federal law treats money paid to a third party for the employee's benefit as the equivalent of payment to the employee. The federal law in question is Title III of the Consumer Credit Protection Act, and it has two primary requirements:

The amount that can be garnished is limited to no more than either 25 percent of your employee's disposable earnings (meaning, earnings after legally required deductions like payroll taxes, workers' compensation, or unemployment compensation premiums), or the amount by which disposable earnings exceed 30 times the current minimum hourly wage set by the FLSA (currently, that amount is $154.50).
You cannot terminate employees because their wages were garnished.

If the garnishment is issued under a state law, and that state law provides even more protection than the federal law, you would have to honor those additional protections.

State laws. State laws on garnishment are detailed and complex. When you talk to your attorney, be sure to ask how the following points are handled under your state's laws: