Wage garnishment: What it is and how to do it

A wage garnishment can be stressful for both employers and employees. It requires employers to make a payroll deduction for the garnishment amount and then remit it to the appropriate agency. 

Understanding this obligation can help employers avoid penalties. While the concept is straightforward, the process can be complex, with specific rules and regulations varying by state and type of debt. 

Let’s look at the different types of wage garnishments, the legal limits, and the steps involved in the process:

How does wage garnishment work?

Types of wage garnishments

Payroll garnishment rules by state law

Example of a wage garnishment

Tips for managing wage garnishments

Next steps for streamlining your payroll process

Wage garnishment FAQ

How does wage garnishment work? 

Employees may fall behind on various financial obligations, such as taxes or student loans. If these obligations remain unpaid, creditors may pursue legal action to collect the money. This often leads to a wage garnishment order. You, as an employer, are then legally obligated to withhold a specific percentage or fixed dollar amount from the employee's compensation. 

The process of wage garnishment looks like this for employers: 

1. You receive a garnishment order: Your business gets a court order or notice of wage garnishment from a government agency—usually via mail.
2. Verify the order: Review the order and confirm it with the appropriate agency. 
3. Notify the employee of the order: Inform the employee in writing about the wage garnishment and amount. 
4. Setup the withholding amount: Enter the withholding amount in your payroll software or contact your payroll provider.
5. Deduct the garnishment from wages: Ensure the garnishment amount is being deducted from their paycheck. 
6. Remit payments to the proper authority: The employer sends the withheld amounts to the designated recipient (e.g., creditor, court, or government agency). 
7. Terminate the garnishment: The wage garnishment continues until the debt is paid in full, the court order expires, or the employee leaves the company.

The wage garnishment order details the employee to be garnished, the amount, and where to send the payments. Note the amount might be a fixed amount or a percentage of the employee's wages—and the period will vary.

Types of wage garnishments 

There are various types of wage garnishments that employees may face. For example, here are the key reasons that you may get an order to conduct a wage garnishment: 

• Child support is one of the most common types of wage garnishments. 
• Creditor garnishments occur when a creditor obtains a court order to collect on unpaid debts like credit card bills or personal loans.
• In some bankruptcy cases, wage garnishment may be used to repay creditors.
• Defaulted student loans can lead to wage garnishment.
• Unpaid taxes can result in the government garnishing wages to satisfy the debt.

Each type of garnishment has its own set of rules and regulations that employers must follow. You’ll need to understand the rules to ensure compliance and avoid potential penalties.

The amount that can be garnished varies depending on the type of debt and state law but is generally based on employee compensation. It’s a percentage of the employee's disposable earnings, which is the amount left after legally required deductions like taxes.

Payroll garnishment rules by state law

State laws governing wage garnishments can differ from federal regulations. Adhere to the law that provides the most protection to the employee—meaning the law that results in the least amount of earnings being garnished.

State laws may cover various aspects of wage garnishment, including:

• Outlining response requirements, including the specific procedures and timeframes. 
• Defining disposable earnings, which is the amount of an employee's pay remaining after legally required deductions.
• Specifying deadlines to remit payments for sending garnished wages to the appropriate agency via check or electronic payment. 
• Setting maximum limits on the percentage or amount of disposable earnings that can be garnished. 
• Establishing rules for multiple garnishments to determine the order in which multiple garnishment orders for the same employee should be processed.

Employers must be aware of and comply with the specific payroll garnishment rules in each state where they have employees. The maximum amount an employer can garnish from an employee in any workweek or pay period is the lesser of 25% of disposable earnings or the amount by which disposable earnings are 30 times greater than the federal minimum wage of $7.25. 

Check with your local state legislature to determine the state-specific wage garnishment requirements.

Example of a wage garnishment 

Let’s look at an example of a wage garnishment on a pay stub. For example, an employee's gross wages are $1,000. After deducting payroll taxes, their disposable income is $es. 

The employee has two garnishments—child support and tax levy. The weekly garnishment deduction is $124.50, which is 16.6% of the employee's disposable earnings. The employee's net pay after the garnishment is $475.50.

Understanding the wage garnishment law

The Federal Wage Garnishment Law, also known as Title III of the Consumer Credit Protection Act, establishes limitations on how much of an employee's wages can be garnished. The law protects employees from financial hardship while ensuring creditors receive some form of repayment.

Your role as a business owner is to comply with the court order while ensuring your employee's financial well-being is not significantly jeopardized. Title III covers the types of income that are protected as well as the limits on garnishment. 

Tips for managing wage garnishments

You’re legally obligated to comply with wage garnishment orders. You’ll need to withhold the specified amount from an employee's paycheck and remit it to the designated agency or creditor. If you get a wage garnishment order, you should: 

• Respond promptly: Notify the employee timely and detail the specifics of the order and relevant contact information so they can verify the garnishment themselves. 
• Keep your departments informed: Update your human resource and payroll departments about the garnishment. 
• Calculate and withhold correctly: Understand and apply the rules—this involves identifying the employee's disposable earnings. 
• Maintain accurate records: Keep meticulous records of your payroll accounting for deductions and payments and of all garnishment-related communications. 

The garnishment ends when the debt is paid in full, the garnishment order is revoked, or the garnishment period is over. Note you’ll typically receive a notification from the court or agency when to stop the garnishment.

Next steps for streamlining your payroll process 

Navigating a wage garnishment can seem like a burden for both employers and employees. However, understanding these obligations and other important payroll questions is key to minimizing legal risks and ensuring compliance.

Payroll software like QuickBooks can be a valuable partner in this process. Automate your calculations and streamline payments to manage garnishments accurately and efficiently. This not only reduces the risk of errors and penalties but also frees up valuable time and resources.

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