What are Wage Garnishments?
As a small business owner, one of the topics you may come across while calculating payroll is wage garnishments. A wage garnishment is “any legal or equitable procedure where an employer withholds some portion of a person's earnings for the payment of debt.” Understanding wage garnishments are vital because there are specific rules you need to follow when it comes to processing payroll.
Understanding Wage Garnishments
Essentially, wage garnishment is a debt that your employee owes. Some of the most common wage garnishments are:
- Child support
- Defaulting on a student loan
- Unpaid taxes
- Other consumer debts
As a small business owner, you are responsible for withholding a percentage of an employee’s compensation based on the requirements mandated by the government. If you receive a notification about a wage garnishment, it’s crucial that you act quickly because these are usually time-sensitive debts that can lead to penalties if not withheld in the proper time.
Note: Any voluntary wage assignments that are chosen by an employee, such as medical insurance or pre-tax benefits, are not considered wage garnishments.
How Wages Are Garnished
When it comes to garnishing wages, the amount due will come from an employee’s disposable earnings. Disposable earnings refer to any money remaining after legally mandated deductions such as federal, state, and local taxes, state unemployment insurance contributions, and Social Security taxes. The amount of money that makes up the disposable income includes salaries, bonuses, sales commissions, along with any earnings that come from retirement plans and pensions.
When it comes to how much money can be garnished, it varies depending on the type of garnishment. Student loans tend to be 15 percent and can be as much as 65 percent of disposable earnings for child support. Each state has its laws for wage garnishment requires, so as an employer it’s important that you’re aware of the requirements for your state and comply. Even though your employee may have a lot of debt, they will always be allowed to keep a certain percentage of their paycheck for general living expenses.
Frequently Asked Wage Garnishment Questions for Employers
- “Can I fire an employee due to garnished wages?” Under the Consumer Credit Protection Act (CCPA) requirements, employers cannot fire employees due to wages being garnished for a single debt. However, there are no provisions in place for employees who have multiple wage garnishments. Again, there are some protections that your state may allow these employees, so it’s important to understand.
- “How will I be notified if an employee’s wages need to be garnished?” Typically, you will be notified of a wage garnishment via court order or IRS levy. Remember to start withholding and remitting the payment as soon as you receive it. If you have any questions, the paperwork you receive should include contact information that you can use to help you out.
- “What are my obligations as an employer?” In addition to acting quickly on the garnishment, you must give written notice to your employee to let them know. You may be given a form to use depending on the garnishment, but you can also draft a letter that details the specifics of the wage garnishment order, the amount that will be withheld each paycheck, and the length of time this will happen. If you get help with payroll, you’ll either want to let that person or payroll company know.
Wage garnishments may not be something you have to deal with frequently as a small business owner, but in case the situation comes up you will want to know how to withhold these garnishments properly. If you find yourself struggling when the time comes, you can always reach out to a professional to ensure that your plan and procedures are compliant. If you aren’t sure how to handle this, choosing a payroll service can help with that.
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This website contains articles posted for informational and educational value. SurePayroll is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, SurePayroll. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant. If you require legal or accounting advice or need other professional assistance, you should always consult your licensed attorney, accountant or other tax professional to discuss your particular facts, circumstances and business needs.