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Wage Garnishment: What Small Business Owners Need to Know

By Jo McClure, CPP on Jan 19, 2022
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What Small Business Owners Need To Know About Wage Garnishment

When it comes to the issue of wage garnishment, things tend to get a bit tricky. As a small business owner, the initial notification of an employee’s court-ordered wage garnishment may seem somewhat of a shock, it’s important to understand exactly how to proceed and what, in this type of situation, you as the employer must do.

A relatively common occurrence, wage garnishment can have an impact on your company. Being prepared and armed with the proper knowledge of the general rules for wage garnishment is important. Knowing what income cannot be garnished, how exactly to handle payroll garnishments and what actions you must take, all factor into this particular scenario.

It is important to note that wage garnishment does not work the same in every state. Each state has its own rules and regulations regarding how employee wage garnishment work. Kansas City area businesses must therefore understand the relevant Kansas or Missouri laws as they apply to garnishment cases. If your company doesn’t necessarily have a dedicated HR team, this can sometimes get complicated which is one reason why so many more Kansas City-based businesses are outsourcing their HR services and payroll—so that you are able to stay on top of critical issues such as wage garnishment.

wage garnishment and child support

What is Wage Garnishment?

Let’s start with the basics … what exactly is wage garnishment? If a person fails to pay a financial obligation such as a tax debt, a court might order that their wages be garnished. This means that a portion of their paycheck will have to be withheld and sent to the garnisher to meet their obligations.

As the employer of record, it is on you to withhold the court-ordered amount and then send it generally to a third party. Depending on which state you live in, you will need to comply with all relevant directives in the event of wage garnishment. Employers who do not withhold and send payments as ordered are subject to penalties in every state. These may include repayment of the amount of the missed withholding plus penalties and fines. 

Usually, when the court at the state level does order that someone’s wages be garnished, it is because that person has fallen behind on paying:

  • Student Loans
  • Taxes
  • Creditor debts

In the case of child support, federal and state laws require income withholding in almost all cases. Receiving an income withholding order for child support does not necessarily mean that the employee has not been paying child support.

RELATED: What Employers Can Do When Employees Discuss Wages >>

What Income Cannot Be Garnished?

When the garnishment is ordered, the state sets limits on how much of the person’s income can in fact be withheld. Some will cap any such garnishment at 10% of disposable wages, while other states might have a much higher cap—upwards of 25% of disposable salary.

In many cases, there are legally required deductions that must come out of the income first prior to calculating the amount to be garnished from the remaining “disposable income.” These deductions include such things as federal, state, and local taxes, and the employee’s share of Social Security, Medicare and State Unemployment Insurance tax. Again, the exact definition of disposable income, as well as the allowed amounts of garnishments, will differ from one state to the next.

RELATED: Addressing the Common Issue of Pay Compression >>

Some General Rules for Wage Garnishments

As an employer faced with a court-ordered wage garnishment, you will be required to take certain actions almost immediately upon receipt of the court’s notification. As far as how you handle payroll garnishment, below are a few things you will need to know:

  • Upon receiving notification of a wage garnishment, you will have to review the state laws that apply to the situation. If you don’t have an HR professional on staff, this is where hiring a PEO experienced in these types of employment matters and that has experts conversant in garnishment laws really can be a lifesaver.

  • When you receive the notification, you will also receive a response form that acknowledges you are aware of the situation. This needs to be filled out and returned to the court in a timely manner (by the stipulated date).

  • The wage garnishment notice is the signal to immediately withhold the set amount from the employee’s wages. You, therefore, need to start the withholding as soon as any such notification is received.

  • Whether or not the employee decides to contest the garnishment is up to them; until you receive notification of any changes, you have to continue withholding the stipulated amount from their paycheck.

  • You will generally be required to follow reporting procedures as far as the employee wage garnishment goes. The type/frequency of reporting will again depend on the state in which you are located.

  • It can so happen on occasion that an employee has more than one garnishment. In this case, it’s important to understand the order of priority as outlined by the state. Again, an HR consultant can be indispensable in this matter.

RELATED: When Hourly Met Salary - Should You Switch Salaried, Exempt Employees To Hourly Pay? >>

Hire an Expert to Help You with Wage Garnishment Details

As a small business owner, you often have an inordinate amount on your plate. Throw in a sudden notification of wage garnishment and things can start to get quite complex. If your company does not have an in-house HR team, then you might seriously want to consider enlisting the services of a Kansas City-based PEO. At Axcet HR Solutions, our highly qualified team of payroll and HR experts have dealt with numerous cases of garnishment. We know the state regulations, and we can help you stay compliant. Make no mistake about it, compliance is absolutely key when it comes to handling payroll garnishments. Call today to see how we might be able to assist your small business.

Payroll Administration: Payroll frustration? We can help.

Written by Jo McClure, CPP

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