One aspect that many small business owners tend to fear is garnishment of wages. Although this is a consequence that many employees face, it is also one that can affect your business if you fail to handle the situation properly. The garnishment process differs from state to state, but there are some general guidelines you can follow to ensure that everything is handled properly in accordance with the law.
When a court orders wage garnishment for an employee, the business that employee works for must comply with that order by withholding a percentage of his or her pay. Failure to do so can result in that business being held liable for the employee’s debt and any associated attorney fees and punitive damages. It is extremely important for you to understand that only a portion of an employee’s wages can be used to satisfy a wage garnishment. This is done to protect the employee so he or she won’t end up penniless.
How Much Am I Supposed to Withhold for Creditors?
According to Title 3 of the Consumer Credit Protection Act, the amount an employer may set aside from a worker’s pay to satisfy a traditional debt is not more than 25 percent of the total pay or 30 times the amount of the federal minimum wage for the employee’s state of residence. The maximum amount that can be withheld for student loans is 15 percent, and for child support and alimony it is 50 to 60 percent depending on the ruling. This money is to come from an employee’s disposable earnings or earnings after all of the appropriate deductions (taxes, social security other required deductions) have been made. This can be a challenge for many business owners to calculate. Fortunately, if you have to garnish employee wages, the amount you need to deduct with the applicable deductions factored in will already be predetermined for you.
Although wage garnishment is a pain for employers to deal with, it is not sufficient grounds for termination. However, there are exceptions, such as a second wage garnishment or a subsequent one. If an employee ends up with a second or subsequent wage garnishment, then federal law no longer protects that employee from being fired or laid off. If you do not keep accurate accounting of employee wage garnishments and terminate an employee when they receive his or her first wage garnishment record with you as their employer, you are violating that employee’s rights. You, their employer, will be required to compensate that employee with back pay, any pay that was improperly garnished and may even be required to give them their job back. If it is determined that the termination was done intentionally, criminal charges and fines may also follow.
Employer Responsibilities for Wage Garnishment
The courts or the IRS will inform you of the amount of pay you are to withhold from each paycheck. You are required to send that money directly to the organization that is specified in the court order. If the garnishment is for child support, you would send the money to the organization that is in charge of child support. If the money is for a tax delinquency, you would send it to the agency that is in charge of collecting payments for the IRS.
It is not uncommon for employees to quit their jobs or to become terminated for other reasons in an attempt to avoid wage garnishment. Should an employee that you are garnishing wages for become unemployed by your company, it is your responsibility to let the appropriate authorities know. This information is generally provided to you during the initial stages of the wage garnishment process.
There may be additional regulations in place, such as state law that offer additional protections for employees. It is your job to know these laws and adhere to them. Since wage garnishment laws vary from state to state, some may require you to garnish less than what is ordered by the court. In this case, you are federally required to follow the law in which the lower wage garnishment amount applies. If you are not sure of what to do or have concerns, hire a legal agency to work with your HR department to ensure your business remains compliant to avoid stiff fines and penalties.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.