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Wage Garnishments: An Employer’s Guide to Compliance and Risk Management

Wage garnishments—sometimes called withholding orders—are a common but often misunderstood aspect of payroll administration. Employers are legally obligated to process these orders correctly, on time, and within specific limits. Failure to follow the rules exposes the organization to financial penalties, legal liability, and potential litigation. This article outlines what garnishments are, the major types employers encounter, the operational requirements that apply, the risks of noncompliance, and the level of control employees do (or do not) have over these deductions.

1. What Is a Wage Garnishment or Withholding Order?

A wage garnishment is a legally mandated deduction from an employee’s earnings, typically ordered by a court, government agency, or authorized creditor. It requires the employer to withhold a specific portion of the employee’s disposable income and remit it to the entity entitled to payment.

Key characteristics:

Mandatory: Employers must comply; these are not optional deductions.
Ongoing: Withholding usually continues each pay period until the order is satisfied or formally released.
Strictly regulated: Federal law (primarily the Consumer Credit Protection Act, CCPA) and state law define how much can be withheld.
Tied to specific earnings: Most garnishments apply to “disposable earnings,” which is gross earnings minus required taxes and mandatory deductions.

2. Common Types of Wage Garnishments

Employers can receive a range of garnishment orders. Each type has unique rules for priority, calculation, and remittance.

2.1 Child Support and Alimony (Domestic Support Obligations)

Usually ordered by a court or state child support agency.
Often take priority over all other garnishments.
Can include ongoing support plus arrears.
Allowable withholding amounts are typically higher than for other garnishment types.

2.2 Federal and State Tax Levies

Issued by the IRS or state tax authorities for unpaid taxes.
IRS levies apply specific exemption tables rather than CCPA percentage limits.
Tax levies generally have second-highest priority after child support.

2.3 Creditor Garnishments (e.g., credit cards, medical bills, personal loans)

Initiated after a creditor wins a court judgment.
Subject to the federal CCPA limit: generally 25% of disposable earnings, or the amount by which disposable earnings exceed 30 times the federal minimum wage—whichever is less.

2.4 Student Loan Garnishments

Issued administratively by federal agencies for defaulted student loans.
Typically up to 15% of disposable earnings under federal rules.

2.5 Bankruptcy Orders

Income deduction orders are issued through bankruptcy courts.
These usually override most other garnishments except certain domestic support obligations.

2.6 Federal or State Agency Orders (e.g., overpayment collections, restitution)

Various agencies can issue administrative wage garnishment (AWG) orders.
These follow their own governing statutes and may function similarly to creditor garnishments.

3. Employer Obligations and Requirements

Handling garnishments properly requires accuracy, consistent processes, and timely action. Core responsibilities include:

3.1 Timely Acknowledgment and Response

Employers must respond to the garnishment notice within the timeframe specified (often 7–20 days).
Some orders require employers to provide information about the employee’s employment status and earnings.

3.2 Correct Withholding Calculations

Employers must apply federal and state limits when calculating disposable income.
When multiple garnishments apply, employers must follow strict priority rules.
State laws may impose lower withholding limits than the federal baseline.

3.3 Regular and Accurate Remittance

Payments must be sent to the designated agency or recipient by the due date.
Employers must include any required forms, case identifiers, or reference numbers.

3.4 Recordkeeping and Documentation

Maintain copies of the order, correspondence, payment history, and calculations.
Documentation protects the employer in case of disputes or audits.

3.5 Employer Fees (When Permitted)

Some states allow employers to charge a small administrative fee to the employee per garnishment.
Fees must comply with state law and cannot exceed statutory limits.

3.6 Continuous Monitoring

Employers must monitor for:
- Updates or amended orders.
- Terminations or changes in employment.
- Limits reached (e.g., balance paid).
- Additional garnishments requiring reprioritization.

4. Consequences of Noncompliance for Employers

Failure to comply with a garnishment order can create significant financial and legal exposure.

4.1 Employer Liability for the Employee’s Debt

In many cases, if an employer fails to withhold and remit payments correctly, the employer can be held personally liable for the amount that should have been withheld. This can include:

The full remaining balance of the debt.
Accrued interest.
Penalties assessed by the court or agency.

4.2 Fines and Penalties

Agencies and courts can impose civil penalties for:

Late or incomplete remittance.
Failure to answer the garnishment notice.
Incorrect calculation of withholding.

4.3 Legal Action

Noncompliance can result in:

Contempt of court orders.
Lawsuits from creditors or government agencies.
Wage claims filed by employees if deductions were excessive or improper.

4.4 Reputational and Administrative Impact

Garnishment mismanagement creates employee relations issues.
Errors increase payroll workload and risk of audits.
Repeated violations can lead to greater regulatory scrutiny.

5. Whether Employees Have Any Say in the Payments

Employees typically have little to no control over wage garnishments once an order has been issued. Key points:

Employees cannot stop or modify garnishments through the employer. Any disputes must be addressed with the issuing agency or court.
Employees cannot request lower withholding amounts. Employers must follow the order exactly.
Employees must be notified by the issuing entity, not the employer, before wage garnishment begins (creditor judgments, tax levies, etc.).
Voluntary payroll deductions (e.g., wage assignments or repayment agreements) can occur only when initiated by the employee, but these are separate from legal garnishments.
Employees may contest the garnishment on grounds such as mistaken identity, paid amounts, hardship provisions (for IRS levies and some state laws), or invalid judgments—but again, this happens outside the employer’s control.

Once the employer receives a valid garnishment order, compliance is mandatory regardless of employee objections.

6. Best Practices for Employers

To reduce risk and streamline compliance:

Establish a standardized garnishment processing workflow within payroll or HR.
Assign responsibility to trained staff who understand federal and state rules.
Use payroll systems capable of handling multiple garnishments with correct priority logic.
Respond promptly to all notices and maintain robust documentation.
Communicate clearly with employees about the employer’s legal obligations and their avenues for dispute resolution.
Review state-specific requirements regularly to ensure ongoing compliance.

Conclusion

Wage garnishments are a routine but highly regulated component of payroll operations. Employers have strict, non-negotiable obligations to calculate, withhold, and remit payments correctly. Noncompliance exposes the employer to significant financial and legal consequences, including liability for the employee’s debt. Employees themselves generally have no authority to alter or halt a garnishment through the employer; disputes must be addressed directly with the issuing agency or court.

By establishing clear procedures, ensuring accurate calculations, and adhering to applicable laws, employers can handle garnishments efficiently while minimizing organizational risk.

At Pay ‘n Time, we help our clients navigate the complex and often confusing subject of wage garnishments. Please work closely with your Payroll Accountant should you receive such a letter.