When an employee receives a garnishment notice, it is vital to act fast. Calculate the amount to be withheld based on the order and federal or state laws.
Determine an employee’s disposable income, which is their gross pay minus legally required deductions (taxes, cafeteria plan, health insurance). Keep records of all remittances sent to the creditor or agency.
Determine the Amount You Need to Withhold
You will typically receive instructions on how to act once you receive a garnishment order, including details on the precise amount you must withhold and when to deduct it from the wage garnishment payroll. It frequently includes the phone number of sources you can call if you have any questions. It is essential to read and follow these carefully, as any violations could result in penalties for your business.
Typically, you must withhold a fixed amount from your employee’s gross pay. In some cases, however, you may be required to withhold a percentage of your disposable earnings. For instance, a wage garnishment ordered by the Consumer Credit Protection Act (CCPA) or other federal laws may require you to withhold up to 25% of an employee’s disposable income. In this case, disposable income is the amount remaining after legally mandated deductions, such as state and federal withholding, social security, health benefits, and direct deposits, have been removed from an employee’s paycheck.
To determine the amount you must withhold from an employee’s wages, start by calculating their gross pay, including all earned compensation for services, such as salary, commissions, bonuses, advances, draws, and tips. You will use the amount to calculate their tentative withholding amount, which will then be multiplied by the percent listed on the garnishment order. From there, you will add any taxes that must be applied based on the employee’s elections on their W-4.
Determine When You Need to Withhold
According to a recent study from ADP, approximately 1 percent of employees were subject to wage garnishments in the United States. The process can be stressful and arduous for both employees and employers. Creditors will withhold money from an employee’s paycheck, which can take a sizable chunk out of their overall salary. The garnishment may be for child support or tax-related debts. The law is clear that once a garnishment order arrives, it must be acted upon immediately.
Once the garnishment order comes, it’s essential to understand precisely when and how much must be withheld. It is usually detailed on the garnishment notice. A garnishment calculator may also help you determine the amount of withholding necessary based on the employee’s disposable income and relevant federal and state limits. A garnishment order typically lists a specific start and end date and may also provide instructions on where to send the withheld funds.
Garnishment orders may also include a maximum amount, and once an employee’s wages are garnished to that point, the debt collection process must stop. If a garnishment ends, an employee should return to regular payroll.
Sometimes, an employee’s creditor may contact the company for a different payment arrangement or to work out a plan to pay off the debt. It must be handled between the creditor and your employee, and you are not authorized to manage these requests or answer any questions related to the garnishment or the debt.
Calculate the Amount You Need to Withhold
Once your employee has received a garnishment notice and you have determined when it needs to start, you must calculate how much you need to withhold. Your employee’s disposable earnings – the amount they make after mandatory deductions have been removed, like taxes and Social Security – are the basis for this calculation. It may include supplemental wages such as bonuses, commissions, overtime pay, payments for accumulated sick leave, awards, prizes, backpay retroactive pay increases, non-deductible moving expenses, and taxable fringe benefits.
The specifics of calculating withholding will vary by state. For example, in some states, the calculation will be based on an employee’s wage bracket; in others, it’s based on the percentage of their gross income. You can find instructions and the appropriate withholding tables in IRS Publication 15-T.
In either case, you must determine each employee’s wage range and apply the applicable withholding table. You’ll also need to consider voluntary pre-tax deductions like health insurance or 401(k) contributions and involuntary post-tax deductions such as garnishments and child support.
Once you’ve calculated the amount to withhold, you’ll need to remit it to the agency or creditor as instructed in the garnishment order. Remember, your employee’s right to challenge the garnishment or work out a different payment plan is handled between them and their creditors, not you.
Apply the Amount You Need to Withhold
A creditor can file a lawsuit against an individual who does not pay their debt, winning a judgment that allows the court to garnish wages or bank accounts to help recoup the money. These wage garnishment orders are usually sent to employers as part of the original notice of the judgment, and they will outline specific responsibilities for how much of an employee’s disposable earnings should be withheld, where to send it, when to start and stop, and other vital details.
When you receive these garnishment instructions, respond quickly and carefully to ensure your company doesn’t violate federal or state wage garnishment laws. Wage garnishment regulations vary from state to state, with some imposing caps and other job protections for employees who are subject to them. For example, some types of debts — like child support — are given priority over other debts, which can also reduce the total amount that can be garnished from an employee’s paycheck.
In general, a court will only allow a certain percentage of an employee’s disposable earnings to be withheld based on the amount of the debt they are trying to pay off, their income level, and how long they have defaulted on the debt. The garnishment amount must also take into account the employee’s exemptions and deductions, such as payroll taxes (federal, state, and local) and other legally required deductions (such as social security, Medicare, and state unemployment insurance), as well as any voluntary deductions the employee may make from their wages.
