Employers have various obligations to their employees, including the timely payment of wages in full. But if an employee is delinquent on a particular debt and the court orders that the debt be paid, an employer may be required to withhold part of the employee's earnings. This procedure is known as wage garnishment.
An employee's earnings include wages, salaries, commissions, bonuses, and income from a pension or retirement program, but do not ordinarily include tips. One of the most common reasons for a wage garnishment order is for the payment of child support (typically after successive months of nonpayment). Other reasons include payment of back taxes (federal or state), personal or student loans, and judgments from court cases.
Employers need to understand that there are limits to how much money may be garnished in a pay period, in addition to other employee protections under federal law. For more articles and resources related to this topic, you can visit FindLaw's Wages and Benefits section.
Protections for Employees
As a small business owner, it's important to know that there are limits in place with respect to wage garnishment. The main idea behind these protections is to prevent the debtor from going broke, which is not in the best interests of the creditor either (particularly if the debtor files for bankruptcy). Two of the most important protections provided by federal and state laws are limits on the amount that can be withheld and job protection.
Title III of the Consumer Credit Protection Act (CCPA) limits the percentage of an employee's wages that can be withheld. Specifically, the amount that may be garnished may not exceed 25 percent of disposable earnings or the amount of disposable income minus 30 times the federal minimum wage (whichever is less). The term "disposable earnings," in this case, refers to an employee's earnings after taxes, Social Security deductions, and other legally required deductions are taken out. Employers need not do the math, though, as the court or agency (such as the Internal Revenue Service) will already have calculated this.
In addition, wage garnishment can't be the sole basis for firing an employee. More specifically, an employee can't be fired or laid off because he or she has one debt that requires the employer to garnish the employee's wages. However, if an employee has a second or any subsequent debts that require garnishing wages, then the employee is not protected from being let go. Employers found to be in violation of Title III may be ordered to either reinstate and pay back wages of improperly terminated employees, or pay back wages that were improperly garnished. Those who willfully violate the portion of the law protecting employees from termination may face criminal charges and fines.
How Wage Garnishment Works
Generally, the employer will be told how much he or she needs to withhold and send to the appropriate agency. For example, if an employee is delinquent in his or her child support payments, the government agency in charge of such orders will send a letter informing the employer that he or she will be required to withhold part of the employee's earnings. It is then the employer's responsibility to withhold and submit the withheld amount to the proper agency. Finally, if the employee is fired, quits, or is otherwise let go, the employer is usually required to let the proper authority know.
Some states also have wage garnishment laws that are similar to Title III of the CCPA. As with other employment laws and regulations, employers are required to follow the law that offers the most protections for employees.
The Department of Labor offers materials to help small businesses comply with federal wage garnishment law and other provisions of the CCPA.
Getting Legal Help
Generally, garnishing wages doesn't require the assistance of an attorney. However, if you have any questions or specific legal quandaries, you may want to contact an employment attorney near you.