If an employee is subject to a wage garnishment, you need to know what this means and how you should respond.
When an employee has an unpaid debt of some kind, you may receive a court order obtained by creditors to collect an outstanding debt. The most common types of garnishment include tax levies, court-ordered child and spousal support, bankruptcy orders, student loans, wage assignments, and creditor garnishments.
The Consumer Credit Protection Act (CCPA) limits what percentage of a worker’s wages can be withheld for a garnishment. Generally, creditors can claim 25% of the person’s disposable earnings or all disposable earnings beyond 30 times the federal minimum wage, whichever is less. It is important to know your state laws as there are some variations. For instance, four states—Pennsylvania, North Carolina, South Carolina, and Texas—don’t allow wage garnishments except for tax-related debt, child support, federal student loans, and court-ordered fines/restitution. Elsewhere, Delaware law further limits garnishments to 15% disposable earnings less 30 times minimum wage.
When you receive a garnishment notice, you must immediately start withholding the specified amount from the person’s paycheck and send it to the creditor. You also should notify the creditor and employee that you received the notice and that you will comply. It is essential to follow all the rules in a timely fashion, as mishandling a garnishment can lead to a judgment against the employer.
It is important to note that the CCPA forbids employers from firing workers because of a garnishment. In Delaware, employers that fire an employee for this reason are subject to criminal fines/penalties.
Some people may challenge the garnishment in court. If this happens, immediately stop paying the creditor; instead, send the payments to the court or garnishment-issuing agency. This entity will assume responsibility for holding the funds until a settlement is reached. If the employee quits or is dismissed (for reasons unrelated to the garnishment) and is removed from the payroll, you aren’t required to continue making payments. However, it’s advisable to notify the creditor in writing with this information.
It is important to realize that a wage garnishment can have an emotional impact on the employee. He or she may feel ashamed or humiliated. This, along with the financial hardship a garnishment can cause, may lead to feelings of stress and anxiety. HR can help, for example, by providing financial wellness training and counseling or tax education to help manage debt.