As an employer, you may receive a court order requiring you to withhold from the wages of an employee due to wage garnishment or child support obligations. Here's what you need to know when you receive an order.
11 Facts about Wage Garnishment and Child Support
- You are legally obligated to comply with the order. Failing to withhold wages that are court-ordered can put the employer at risk of being held in contempt of court. Additionally, in the majority of states the employer can actually be held responsible for the entire debt if they fail to withhold.
- You must respond even if the person is not employed by your organization. Failing to respond can be considered failing to comply, so notify the sender of the court order as soon as possible if you receive an order to withhold on somebody who is not employed by your organization.
- Wage garnishment and child support withholding orders are highly time-sensitive. You should set up the deduction as soon as possible after receiving them to avoid further notices and the potential for legal consequences.
- Garnishment and child support deductions are limited to a percentage of disposable income. Garnishments should never exceed 25% of disposable income while support should not exceed 50-65% of disposable income (depending on circumstances) and student loans are limited to 15% of disposable income.
- Tips are not considered earnings for purposes of calculating the deduction. Use disposable earnings, minus tips, to calculate the per-pay-period deduction.
- Garnishment deductions should be post-tax. It's important to note that dollars withheld for garnishments or child support orders must be set up to come out after wages are taxed.
- When it comes to lump-sum payments, it's the Wage & Hour Division's opinion that the following are considered earnings for garnishment purposes under the Consumer Credit Protection Act (CCPA). In turn, if the employer payment is considered "earnings" then it is protected from over-garnishment (see #4 above).
First come, first served applies when it comes to garnishments. If an employee has multiple garnishments that will exceed the maximums set by law, child support garnishments take the first precedence and then remaining garnishments are withheld on a first-come, first-served basis. It's critical that the employer communicates with the attorney's office or debtor who has served the withholding order if a garnishment is delayed.
Employees with garnishments are protected by law. Federal law protects employees who have a single wage garnishment from being fired on the basis of the garnishment.
Professional employer organizations handle wage garnishments for you. If you don't have an expert in-house or are unable to accommodate the strict timelines associated with garnishment and child support orders, consider partnering with a PEO. If you already partner with a PEO, find out what services they offer in relation to garnishments and child support.
Informing the employee that you've received a garnishment order is a recommended practice. If it is possible, inform employees that money will be coming out of their paychecks and when. It is not a requirement, as the employee should have also received a notice, but it is good customer service.
- discretionary and nondiscretionary bonuses;
- productivity or performance bonuses;
- profit sharing;
- referral and sign-on bonuses;
- moving or relocation incentive payments;
- attendance, safety, and cash service awards;
- retroactive merit increases;
- payment for working during a holiday;
- workers' compensation payments for wage replacement, whether paid periodically or in a lump sum;
- severance pay; and,
- back and front pay payments from insurance settlements.
Wage garnishment administration requires multiple steps: processing certified mail in a timely manner, setting up the garnishment according to state and federal law, turning over withheld funds to the debtor or legal office, and stopping garnishments according to the order. Many organizations choose to partner with a PEO like Axcet HR for garnishment management and other human resources functions.