Millions of Americans’ wages are garnished every year, meaning most employers have processed at least one wage garnishment.
Creditors and financial institutions now use wage garnishments to collect on everything from medical bills to consumer debt. Debt collectors, creditors and debt buyers file numerous consumer credit lawsuits annually in almost every state. Not only does the number of wage garnishments have the potential to increase, so does the time it takes an employer to fully execute one. Some interest-accruing orders could leave employers responsible for withholding wages for years.
So, whether you’re processing your first or fiftieth wage garnishment, keeping these things in mind can help you consistently mitigate risk and reduce your company’s liability:
You must respond to a writ of garnishment, even if it was issued to you in error.
Sometimes, courts accidentally send a writ of garnishment either to the debtor’s previous employer or the wrong employer altogether. If you receive a garnishment order under either of these circumstances, you still must answer the garnishment. Specific procedures exist to help employers navigate this situation.
Remember, when you receive a writ of garnishment, the issuing court is ordering you to seize property in the form of wages. Failing to properly respond to a garnishment order could result in noncompliance with a court order and leave you on the hook for the entire amount of the debt.
Laws for calculating garnishments vary depending on the type of order and/or the state in which you are located.
States’ wage garnishment laws differ from one another and from federal law. Understanding which set of laws to follow will ensure you’re accurately calculating garnishment amounts. Generally, you must follow your state’s wage garnishment laws, even if the order originated out-of-state.
Federal law provides that no more than 25 percent of an employee’s disposable earnings can be withheld. However, some states allow garnishment of no more than 10 percent of an employee’s wages. Others have rules against collecting amounts that drop an employee’s earning levels below the poverty line. North Carolina, Pennsylvania, South Carolina and Texas have completely banned garnishment as a means of collecting on consumer debt.
The U.S. Department of Labor advises employers who are faced with conflicting withholding requirements to follow whichever law results in the smaller garnishment.
Exceptions exist for garnishments that result from bankruptcy, nonpayment of state or federal taxes or a child support or alimony order. Withholding percentages for these garnishments are different and you must determine which law takes precedence. For example, employers executing withholding orders for child support or alimony must abide by garnishment laws of the state that issued the order and the state where the employee works, depending on which part of the process they’re executing.
Understanding and following the variances in state and federal laws is crucial to remaining compliant with wage garnishment orders you receive.
Some garnishments take priority over others.
Processing child support orders takes precedence over all other types of wage garnishments. If an employee has multiple child-support-related garnishments, the most recent support order should be given priority over those in arrears.
Other types of garnishments require employers to process existing orders before newer ones. Failure to process garnishments by legally mandated order can result in noncompliance.
Carrying out wage garnishments can be complicated. The administrative burden of executing an order can be challenging for employers, considering the margin of error is practically nonexistent. Employers who don’t pay attention to the details of each wage garnishment order could find themselves facing penalties for noncompliance.
For some companies, outsourcing wage garnishments to a knowledgeable HR and payroll provider is one option that can help them remain compliant, mitigate risk and reduce liability for every wage garnishment they process.