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What is Wage Garnishment?

December 13, 2022

Employers are legally required to follow through on wage garnishment orders or risk penalties. Learn how to stay compliant.

Blog Post

Wage garnishment is a challenging process for both employees and employers – even more so if executed incorrectly and your company is fined or penalized.

To save your business these potentially costly payroll mistakes, it's vital your wage garnishment process is streamlined and carefully vetted for compliance with government regulations.

We’ll start by defining what wage garnishment is, discuss different types of wage garnishment, what employers’ responsibilities are, and how a modern HR & payroll solution like Paylocity can help.

What Is Wage Garnishment?

Wage garnishment is a legal process requiring an employer to withhold a portion of an employee’s earnings to repay a debt. The wage garnishment order will come from a court or government agency, such as the IRS, outlining the details of the request. Employers must comply with this order, otherwise, penalties can add up quickly.

How the wage garnishment process unfolds depends on federal and state laws. For example, how long an employer has to formally notify an employee of a wage garnishment order depends on where you live. That’s why it’s important to have payroll software that excels at managing these differing compliance-related issues for you.

Another quirk of wage garnishment is that government agencies are not required to have a court order to request a wage garnishment, while private creditors do. These creditors will pursue debt collection through a lawsuit, resulting in a “writ of garnishment,” a court order for wage garnishment. Federal wage garnishment requests, on the other hand, are often referred to as “levies.”

Hourly wages, bonuses, commissions, and salaries are all subject to wage garnishment. Wages earned from tips, however, are not.

Who is involved in Wage Garnishment?

The wage garnishment process involves a creditor, a debtor, and a garnishee.

  • The creditor is the court, state, or federal agency that orders debt repayment. It can also be a private entity that acquires the writ of garnishment to secure debt repayment.
  • The debtor is the person or party that owes the debt. In this case, that’s the employee.
  • A garnishee is a third party that receives the order or writ of garnishment and holds the debtor's property. The employer acts as the garnishee because they “hold” wages ultimately paid to employees.

Types of Wage Garnishments

Wage garnishments are sorted into three categories: state, federal, and private. Employees must pay federal debts first, so any wage garnishment requests from federal agencies will precede state-level or private. Though wage garnishment can apply in many different debt contexts, a handful are the most common:

  • Unpaid taxes
  • Overdue child support payments, alimony, or medical support
  • Defaulted government student loans
  • Delinquent credit card loans
  • Outstanding medical bills

How and when employees need to repay each debt depends on the debt type, the creditor, state laws, federal laws, and other nuances that can make understanding employer roles and responsibilities challenging.

For example, the percentage withheld for child support is 50% if the employee supports another spouse or child. That goes up to 60% if they do not support another spouse or child. Another example is bankruptcy orders, which are not subject to the same limits as other types of garnishments.

Moreover, if an employee has multiple wage garnishment orders, not all may need to be paid at once. Child support payments and tax obligations are the top priority when there are multiple wage garnishments.

How Much Can Be Withheld for Garnishment?

Federal law — Title III of the Consumer Credit Protection Act — mandates how much an employer can withhold from an employee’s earned wages.

The amount subject to withholding is applied to an employee’s disposable earnings, which is the amount remaining after legally required deductions, such as income taxes. The maximum weekly amount is determined by one of two figures, whichever results in the lowest amount:

  • 25% of an employee's disposable earnings, or
  • The difference between their weekly disposable earnings and 30 times the federal minimum wage (as of writing, $7.25 x 30 = $217.50). Example: $250 (weekly earnings) - $217.50 = $32.50 (maximum withholding).

The 25% figure is the most common calculation, with the second only coming into play with earnings less than $290 a week ($290 is the point at which the second figure is no longer lower). Note that total earnings less than $217.50 cannot be garnished. See detailed table on the Department of Labor's website.

What Are Employer Responsibilities for Wage Garnishments?

Besides understanding your legal obligation to follow through on wage garnishment orders, employers must understand their responsibilities during the process.

Notify the Employee

First, you must notify your employee immediately in writing that you’ve received a wage garnishment order. Some garnishments may have a standard form that serves this purpose. In the case of a federal levy, form 668 can cover this communication with your employee. It’s best to communicate this information to your employee within one week of receiving the order.

Update your Payroll System

Employers should prioritize notifying HR or payroll departments of the garnishment so relevant information can be entered into payroll and ensure payments are sent to the correct agency or entity.

Familiarize Yourself with State Requirements

Make sure you are aware of your state’s requirements, as they dictate how soon employers must take action with the wage garnishment order to stay compliant.

Cease Garnishments when Appropriate

How garnishments end varies from state to state and by debt type. Certain wage garnishments may outline the date of termination in the initial order. Otherwise, an employer may receive a Notice of Termination for a wage garnishment order.

It’s also possible an employee may pay off their debt through the course of employment. If any of these situations happen, the employer can stop wage garnishment and resume standard payroll processing for that employee.

Frequently Asked Questions About Wage Garnishments

Can an Employer Refuse to Garnish Wages?

Employers cannot refuse to garnish wages. Until they receive a formal release from the garnishment order, they must continue to garnish the employee’s wages. If the employer chooses not to obey the court order to garnish wages, they can be subject to penalties or, in some cases, be held liable for the full sum of the employee’s judgment. That includes court fees, interest, and legal fees.

Can Independent Contractors (1099 Employees) Have Wages Garnished?

Because independent contractors are not employees, they cannot have wages garnished through an employer. However, there are other methods by which a creditor can seek debt repayment from an independent contractor, such as seizing property or other assets.

What’s important to know is that employers who file a 1099 form on behalf of an independent contractor are exempt from wage garnishment. But if an independent contractor is miscategorized in the system as an employee, wage garnishment is still possible. It’s vital to ensure your workers are accurately categorized in the payroll system.

What Do Garnishments Look Like On a Paystub?

Employees can find a garnishment in the deductions section of their pay stub. It’s listed as a code corresponding to the type of garnishment the employer applies to the employee’s disposable earnings.

How Paylocity Helps With Wage Garnishment

If navigating the complexities of wage garnishment feels overwhelming, there are solutions to take the pressure off employers. By opting for payroll software that includes wage garnishment services, you can delegate the process to a team of experts that can:

  • Document and correspond with agencies
  • Interpret, calculate, set up, and maintain historical deduction records
  • Disburse payments by physical check or electronic payment
  • Perform calculation validation against state and federal legislation

Paylocity does all of the above and more, eliminating the manual aspects of the process, which reduces the possibility of costly errors and saves hours for HR and payroll employees. Request a HR and payroll software demo to see how it works.

Stress-Free Wage Garnishment and Payroll

Wage garnishments are common, but they don't have to be complicated. Let our Garnishment Managed Services help. With our expertise, you can spend less time on complex requirements, avoid potential costly errors, ensure compliance, and focus on your employees.

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