Article
4 min read
Author
Shannon Hodgen
Published
November 22, 2023
Last Update
July 24, 2024
Table of Contents
Understanding wage garnishments
Employer responsibilities
Potential pitfalls to avoid
Best practices for employers
Impact on the employer-employee relationship
Simplify US payroll with Deel
Wage garnishments, such as child support and tax levies, are court-ordered deductions from an employee’s paycheck to repay a debt or meet a legal obligation. US employers must consider wage garnishments to comply with the law and manage payroll processes accurately, but the varied legal requirements from one state to another can be confusing.
The specific requirements for wage garnishments impact both employees and employers, yet there is a sensitivity around the deduction as employers may feel stressed or embarrassed. Even so, it’s important to understand the diverse legal requirements for wage garnishments across jurisdictions to ensure compliance and avoid potential legal issues.
By highlighting employer responsibilities, potential pitfalls, and best practices for payroll and wage garnishments, this guide helps US employers easily navigate payroll garnishment.
Disclaimer: This content is for informational purposes only and does not constitute legal or tax advice.
Wage garnishment is a type of debt collection method whereby the court issues payroll garnishments, instructing an employer to withhold a specific amount of money from an employee’s paycheck. The deducted amount is sent directly to the organization or person who is owed money, and the process is continued until the debt is fully paid.
There are different types of wage garnishments, and each type of garnishment has specifications, such as different maximum limits. Common wage garnishments include the following:
Each of these garnishments serves a purpose, going toward unpaid child support or alimony, outstanding debts, defaulted loans, and unresolved consumer debts. Courts issue wage garnishments to fulfill a legal purpose, acting as a mechanism to ensure individuals meet their financial obligations through regular deductions from their paychecks.
Hiring employees in the US demands an updated understanding of wage garnishment laws, limits, and requirements—especially when hiring across multiple states where these details may differ.
Exemption amounts, types of debts, priority of garnishments, and garnishment notice requirements are all details that may differ from one state to another. Employers should also be aware of administrative procedures and the statute of limitations, as these details impact compliance with federal and state regulations.
US employers are responsible for ensuring that wage garnishments are properly withheld and paid on time as required by the law. Any delay or failure in doing so may result in penalties and legal actions against the employer. Here’s a closer look at their responsibilities.
First, employers must review the order to ensure it is valid and complies with all legal requirements. The employer must notify the employee of the garnishment amount and any rights to contest the garnishment.
Once confirmed, employers must calculate and withhold the appropriate amount from the employee’s wages and make timely payments to the appropriate entity. With multiple garnishments, employers must prioritize and allocate funds according to federal and state laws.
Employers must protect employee exemptions throughout the process, such as exemptions for low-income earners, and maintain accurate records of all garnishment orders (and payments made). Employers are also responsible for confidentiality, ensuring that the garnishment details are only shared with team members who need to know, such as the payroll team.
Employers must understand the percentages allowed for various debts and comply with the allocated wage garnishment limits.
While these details may vary, Title III of the Consumer Credit Protection Act (CCPA) stipulates the following details for ordinary garnishments, indicating the maximum amount of money deducted from each pay period.
OR
Note that certain bankruptcy court orders, debts due for federal taxes and state taxes, or voluntary wage assignments don’t apply to the above calculation.
Disposable earnings refer to the amount remaining after the employer has withheld all payroll deductions required by law, such as payroll taxes, Social Security and Medicare taxes.
In addition, some debts, such as child support payments or alimony, may result in higher garnishment percentages in some instances. For example, employers may garnish up to 50% of disposable earnings for child support or alimony. It is the employer’s responsibility to understand the specific requirements while also protecting low-income earners.
Calculating wage garnishments requires expert knowledge of the following process:
Processing wage garnishments can be a complicated and delicate process. The following common mistakes often occur, leading to non-compliance and the repercussions.
Employers begin garnishing wages as soon as they receive the order and continue until the issuing court or agency tells them otherwise. Overlooking or misinterpreting important details in garnishment orders can lead to errors in calculations and compliance.
Communication is important in the wage garnishment process, yet many employers fail to notify employees about garnishments in a timely manner. Neglecting to notify employees about garnishments or not providing clear information about the process can lead to confusion and employee dissatisfaction.
Wage garnishments require specialized attention from a payroll team member who is updated on rules and regulations. Without expert knowledge, there’s a higher risk of errors when calculating the withholding amount, leading to under- or over-withholding.
Exemptions exist to protect the financial stability and basic needs of those facing financial hardships. Failing to consider exemptions for low-income earners or other legally protected income can lead to excessive garnishments that put employees in a financially difficult position.
Timelines are crucial when processing wage garnishments. Employers who do not submit withheld funds to the appropriate agency within the timeframe can face legal consequences and additional penalties.
Non-compliance with garnishment laws can lead to legal penalties, fines, and potential employee lawsuits. There is also the risk of reputational damage and even sanctions imposed by regulatory authorities.
Stay ahead of payroll compliance with Deel’s global payroll compliance checklist.
Employers are vital in ensuring accurate and lawful withholding of wage garnishments. The following best practices lay a solid foundation to avoid legal complications, protect the employee’s rights, and maintain a smooth payroll process.
Drafting clear policies and procedures for handling garnishments promotes efficiency, compliance, and fairness throughout the process. A well-defined procedure ensures that wage garnishment orders are promptly reviewed, accurately calculated, and consistently applied.
The following details should be included in a wage garnishment procedure:
A standardized process helps avoid errors, meets legal obligations, and protects employees.
Navigating wage garnishments can be complicated due to the intricate legal requirements involved in the process. Errors can lead to legal liability and financial struggles, so HR and payroll teams should be fully acquainted with requirements and obligations.
Providing comprehensive training empowers HR and payroll staff with the knowledge and skills to understand the intricacies of garnishment laws. Training should include accurately calculating deductions, ensuring timely and lawful processing of garnishment orders, and staying updated with changing regulations.
A well-informed and compliant workforce will help your company mitigate risks, protect employees, and uphold the employer’s reputation for ethical and responsible business practices.
Leveraging technology saves employers time and resources while meeting legal obligations and maintaining a seamless payroll operation.
For example, working with human resource information system (HRIS) tools helps streamline the wage garnishment process and enhance compliance efforts. Modern payroll and HRIS software solutions help automate the calculations and withholding of garnishments, ensuring accuracy and reducing the risk of human error.
Payroll systems also generate reports, track garnishment orders, and provide reminders for critical deadlines. These features improve efficiency and reduce the time burden on HR and payroll time. Another way that technology contributes to efficient wage garnishment management is through the secure storage of documents, streamlining the record-keeping and compliance process.
Dealing with wage garnishments will have an impact on the employer-employee relationship. The impact can be positive or negative depending on how the team handles the process.
For example, wage garnishments can strain the employer-employee relationship due to financial stress and privacy concerns. On the other hand, handling wage garnishments with sensitivity and adhering to compliance alleviates this stress and makes the process easier to navigate.
Consider the following tips when moving forward with wage garnishment.
Understanding the intricacies of US payroll is crucial for employers to ensure compliance with complex tax, wage, and labor laws while maintaining accurate and efficient payroll processes to support employee satisfaction and financial well-being.
Implementing HR and payroll technology helps streamline the process while avoiding common pitfalls. Deel offers a robust solution for global teams, offering an integrated system to manage various aspects of payroll and HR activities—from hiring employees and onboarding candidates to managing benefits and, of course, dealing with wage garnishments.
While we were very comfortable with hiring locally, we were apprehensive about the costs and legal responsibilities for compliance in the United States. We didn’t want to hire full-time HR people to figure out things like health benefits and filing tax returns with the IRS.... Now we know we can trust Deel to manage the complexities of hiring in the US.
—Matthew Buchanan,
CEO, Letterboxd
Discover how Deel integrates wage garnishments with other essential HR and payroll features in a single platform. Book a demo today.
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