Wage garnishment is usually a tricky topic to navigate, whether you’re an employee or an employer. An employee may be concerned that the garnishment could affect their finances, or their standing at work. Employers should try to balance sensitivity with compliance, as wage garnishment laws don’t leave any room for mistakes. Even though certain aspects of the process (like how to approach the subject with each employee) can be determined by the employer, most of them are strictly regulated. If a company fails to comply with relevant laws, they could be liable for significant civil or criminal penalties.
What is Wage Garnishment and How Does it Work in Payroll?
Being able to answer the question “what is wage garnishment?” is a good start, but knowing how it works is a bit more complicated. Wage garnishment is the act of collecting funds from an employee’s wages, as directed by a court order or other official notice. This can only be done for specific financial obligations, such as child support or certain types of debt, and there are limits on how much can be garnished from each paycheck.
When an employer receives an order to start garnishing wages, they have to start the process immediately. The employee can contest the order, but this doesn’t change the employer’s obligation. Generally, there are only three conditions under which a garnishment order can be resolved:
- The order to garnish the employee’s wages is revoked
- The debt or other financial obligation is fulfilled
- The mandated garnishment period ends
Title III of the Consumer Credit Protection Act (CCPA) places limits on wage garnishments, with some exceptions. According to Title III, employers can garnish the lesser of these two amounts per pay period or workweek:
- 25% of an employee’s disposable earnings, with “disposable earnings” being the amount remaining after mandatory payroll deductions have been withheld.
- Any disposable earnings that exceed 30 times the federal minimum wage.
If the wage garnishment is for child support, the amount that gets withheld could be significantly higher.
- For employees who are supporting a current spouse or child (who isn’t the subject of the wage garnishment): up to 50% of disposable earnings.
- For employees who don’t meet the above criteria: up to 60% of disposable earnings.
- For employees who are more than 12 weeks in arrears: an additional 5%, on top of what was already being garnished for child support.
Wage Garnishment in Georgia
Most of the laws that regulate wage garnishment in Georgia are effectively the same as federal regulations. There are some important exceptions, though. For instance, although federal and state laws have the same caps for certain types of garnishments, Georgia caps garnishments for both federal and private student loan wage garnishments at 15% of disposable earnings. (Federal law permits garnishments of up to 15% for federal student loans, and up to 25% for private student loans.) However, the alternative garnishment calculation of 30 times the federal minimum wage still applies under Georgia law, and both federal and state laws require employers to use the lesser amount for student loan wage garnishment. Georgia employers also have to coordinate with the Georgia Department of Human Services (DHS) for enforcement of wage garnishments, in addition to working with federal agencies, creditors, or courts, as applicable. There are plenty of other examples where federal and state laws diverge, which is why compliance with state as well as federal regulations is crucial for keeping your business healthy.
Types of Wage Garnishments
There are many different types of wage garnishments; these are some of the most common.
- Child support is the only type of wage garnishment that takes priority over federal debts. If someone who owes child support fails to pay it for 30 days or more, then they could be subject to wage garnishment.
- Federal debt from unpaid taxes is also a high priority, although wage garnishment is the final step after a series of notices from the IRS. If the employee fails to either pay, set up a payment schedule, or appeal, they could have their wages garnished.
- Unpaid state taxes can also be repaid through wage garnishment, but not before the employee has received multiple notices from the state.
- Student loan wage garnishment can work differently for federal vs private student loans. Employees who default on federal loans will get the opportunity to make voluntary payments before the student loan wage garnishment begins. For private student loans, however, it could be months to years before a creditor gets approval for a wage garnishment.
- Consumer debt, such as credit card debt, personal loans, medical bills, etc. may be repaid through wage garnishment if no other agreement is reached, and if the creditor obtains a court order. If an employee has more than one wage garnishment for consumer debt, each garnishment is calculated in order of which debt was acquired first.
What is an Employer’s Responsibility for Wage Garnishment?
When an employer receives an order to garnish an employee’s wages, they’ll need to fulfill several responsibilities, both to relevant federal and state agencies and to the employee.
- Acknowledge the garnishment order by responding to the applicable court or agency.
- Notify the employee that their wages will be garnished, making sure to use the most recent version of the required form (which can vary by state).
- Correctly calculate the wage garnishment, as well as applicable fees that employers can use to help offset administrative costs.
- Make each withholding accurately and on schedule.
- In the case of multiple garnishments for one employee, calculate each withholding in order of priority.
- Make sure the employee gets answers for any questions they might have.
- Help coordinate between the employee and the custodial parent, creditor, government agency, etc.
FAQs: Wage Garnishment
Can your 1099 workers have wages garnished?
Yes they can, but involving the employers of 1099 workers isn’t necessarily the default. Instead of focusing on paychecks, creditors may use collection lawsuits, bank account levies, or asset discovery procedures, among other methods. According to federal and most state regulations (including Georgia state law), the income of independent contractors doesn’t have the same protections for how much can be garnished in a given period.
How much of an employee’s wages can be garnished?
Federal law allows wage garnishment of up to 25% of an employee’s disposable earnings, or their disposable earnings that exceed 30 times the federal minimum wage per week, whichever is less. However, if the employee’s wages are being garnished due to unpaid child support or tax levies, different limits apply. Wage garnishment laws in several states set different limits, which allow employers to collect amounts that are equal to or lesser than federally mandated garnishments from eligible employees.
What is the long-term impact of wage garnishment?
For employees, the main long-term impact of wage garnishment is reduced income, which can lead to financial hardships (or add to existing ones). It can also lead to secondary effects, like stress or loss of motivation. For employers, wage garnishment increases administrative costs because of the extra work involved, and also raises the company’s risk of compliance issues.
Can an employee be fired while having wages garnished?
This depends on the reason for firing the employee. Federal law is clear that employees can’t be fired because of having one wage garnishment. That being said, if an employee is subject to two or more wage garnishments, this is considered legal grounds for termination under federal law. If an employee is being fired because of something that’s 1) permitted by labor laws, and 2) unrelated to receiving their first wage garnishment order, then the decision to discharge them is legal. Georgia’s wage garnishment laws are similar to federal regulations in this respect; in fact, only three states extend job protections to employees with more than one wage garnishment.
Are wage garnishments taken out before taxes?
No; employee wage garnishments are always taken out after taxes. An essential part of calculating a wage garnishment is establishing an employee’s disposable earnings, which is their gross income minus all mandatory deductions.
How Can Thread Help with Wage Garnishments?
Just like with any other regulatory requirement, maintaining compliance with wage garnishment laws doesn’t just require extra effort; it also takes in-depth knowledge of constantly shifting regulations. We can help your business stay compliant using a combination of technology and hands-on service, while you choose the level of support that fits your business best. From calculating wage garnishments to providing guidance for discussing sensitive topics, we’re here for you and your business.
