When a debt goes unpaid, creditors will sometimes turn to wage garnishment as a means to collect payment directly from the debtor’s employer. When this happens, the employer is required to withhold a set amount from the debtor’s wages to send directly to the creditor. This requires the employer to uphold certain responsibilities.
The Garnishment Process
When an employee is subject to wage garnishment, the employer will be sent a “writ of garnishment" (garnishment order.) This will come either from a court (in the case of consumer debts, such as credit cards or bank loans) or from a government agency. The federal government can perform garnishment administratively (without going through the court) for debts related to delinquent taxes or federally-backed student loans.
The employer is required to start withholding the garnishment immediately upon receipt of the writ of garnishment. However, the garnishee (employee) is also sent a copy of the garnishment order, and they have a certain number of days to contest it (the exact time period varies by state.) If the employee challenges the garnishment, the employer should immediately stop paying it to the creditor and instead send the withheld money to the court or agency that issued the garnishment. It will be held there until the garnishment dispute is resolved.
The employer is also required to return a statutory response form within 7 days of receiving the writ of garnishment. This form is usually sent to the employer with the garnishment order. With very few exceptions, the employer is required to complete the form indicating that they will pay the garnishment. Even if an exception applies, the response must be sent within 7 days of their receipt of the garnishment order.
The garnishment order will also include a copy of a garnishment calculation worksheet, which the employer should use to determine the amount of money that should be withheld. All pay, including wages, commissions, and bonuses, should be included in garnishment calculations.
For garnishments related to commercial debts, a maximum of 25% of the garnishee’s disposable income (what’s left after federally-required deductions) can be garnished. For garnishments related to child support, up to 50-65% can be garnished (depending on the specific circumstances.) For student loan garnishments, only 15% can be garnished. For delinquent taxes, the IRS uses a special chart to determine the maximum amount of wages that are subject to garnishment (see http://www.irs.gov/pub/irs-pdf/p1494.pdf) – but it’s typical for up to 70% of an employee’s wages to be subject to IRS garnishment.
If the employer has any questions regarding the appropriate garnishment amount, they’re advised to contact the court or agency that issued the garnishment. It’s extremely important that the correct amount is withheld.
Confusion often arises when an employee is subject to more than one garnishment. Overall, a “first in time, first in right" policy applies, where the first garnishment order received is given the highest priority. However, IRS levies and child support garnishments are given priority over other debts, and if the maximum amount allowed by law is already being withheld when an order for child support or tax garnishment is received, the other garnishment will stop (or be appropriately reduced) so that this garnishment can immediately take effect.
Student loan garnishments don’t usually take precedence over existing garnishments. If a writ of garnishment is received for student loan debt, and the maximum legal amount is already being garnished, the employer should contact the Department of Education’s student loan compliance hotline at 404-562-6013.
In most cases, the employer is required to honor the garnishment order, and can face disciplinary action if they don’t do so. However, in some cases the writ of garnishment is sent to the wrong employer (such as the debtor’s previous employer.) If this is the case, the employer can submit the statutory response form, indicating this mistake.
Also, if the maximum amount allowed by law is already being withheld per other garnishment orders (and the current order isn’t for child support or taxes,) the employer cannot honor the new garnishment order and can respond accordingly.
Ending a Garnishment
A garnishment can end in a few different ways, and this can also vary according to state law. Some garnishment orders list an end date. Even if the debt isn’t fully paid, the garnishment will cease on this date. If an employer receives a “Notice of Termination of Wage Garnishment Order," they should also immediately stop withholding the garnishment.
Other Employer Garnishment Considerations
Wage garnishments can cause additional work for an employer, but it’s essential that they comply with, and correctly implement, any garnishment order that is received. In addition, under the Consumer Credit Protection Act (CCPA,) employees cannot be disciplined or terminated for their first wage garnishment (under federal law, this protection doesn’t extend to multiple garnishments). Lastly, some states provide for employer reimbursement related to the administrative costs of implementing a garnishment.
If an employer has questions regarding an employee’s garnishment of wages, they should contact an experienced employment law attorney.