How Payroll Garnishment Operates: An Overview

When you get a garnishment notice, you should know a few things. Most importantly, you must continue paying the garnishment until notified otherwise.

Creditors typically garnish employee wages after getting a judgment from a court or the IRS. These creditors will send documentation to your employer ordering them to take a certain percentage of your employee’s disposable earnings.

Disposable Earnings

Garnishment is a legal process instructing a third party to take money directly from a debtor’s wages or bank account to settle an unpaid debt. This typically includes due taxes, monetary fines and child support payments. Employers are legally obligated to follow wage garnishment orders, and they should understand how payroll garnishment works before processing them.

The amount a creditor can garnish depends on an employee’s disposable earnings. Disposable earnings are left of an employee’s paycheck after all legally required deductions are taken out, such as federal and state income taxes, Social Security, Medicare and state unemployment insurance. Deductions for union dues and insurance aren’t included in an employee’s disposable earnings but may be deducted separately.

Calculating employees’ disposable earnings starts with their gross pay, then subtracting all mandatory deductions. The result is their disposable earnings, the minimum they can have garnished from each paycheck. Amounts withheld by other garnishments or a tax lien aren’t added to this total.

You can withhold their wages if a creditor requests more than the maximum permissible amount. But you must notify them within ten days of receiving the order. You must also provide a statement explaining how the withholdings are calculated and why the garnishment amount differs from the order. Employees can choose to protest the garnishment if they don’t agree with it.

Tip Income

As a payroll manager, you may have to deal with wage garnishments, which are any legal or equitable procedures in which a portion of an employee’s earnings is withheld by an employer and sent directly to a creditor. Typically, the process is initiated through a court order or government agency action (such as an IRS levy). Once you receive notice that your employee’s wages are subject to garnishment, it is your responsibility to start withholding and remitting payments on a timely basis.

In most cases, federal and state laws only allow a maximum percentage of an employee’s disposable income to be garnished. Disposable earnings include an employee’s base compensation and mandatory deductions such as federal, state, and local taxes; worker’s compensation insurance contributions; and Social Security and Medicare taxes. Some states also have additional restrictions on what types of earnings can be garnished; sometimes, tipped income is exempt.

For instance, Virginia Code SS 34-29 says that “bona fide tips received directly from the individual’s customers and not deposited with the employee’s employer or another entity or person on behalf of or traceable to the individual” can be excluded from garnishment calculations. The same goes for service charges and gratuities, which the Department of Labor considers non-wage earnings that can’t be garnished.

Exempt Income

Many kinds of income are exempt from garnishment, including earnings from retirement funds and life insurance policies. Employees should know what is excluded, which can affect their ability to budget and save. For example, an employer could lose a significant amount of money if it garnishes the pay of an employee saving for a home or car.

Creditors are required to provide notice before initiating wage garnishment. In addition, employees may be able to claim an exemption in accordance with state law. This typically means a judge will order the creditor to stop or reduce the garnishment. Similarly, a debtor can file for bankruptcy to stop most garnishments.

Wage garnishments are often complicated for employers, especially working with workers from multiple states or countries. Flores recommends seeking legal advice to ensure payroll deduction procedures are compliant in these situations.

When an employee receives a garnishment order, the governing body will give the employer ten days to withhold. However, the employer must notify the worker and record all garnishment deductions. Employees can view their garnishment balances month, quarter, and year using the Garnishment Balance page in the Payroll System. They must enter their EMPLID or first name, last name, and a period before or after their sex to see this data.

Limits on Garnishments

A creditor must file a lawsuit, win in court, and receive a money judgment before garnishing an employee’s wages. There are also limits on how much of an employee’s income can be garnished, and it is based on an individual’s disposable earnings after mandatory deductions for federal and state taxes, health insurance, and retirement funds.

Once an employer has received a garnishment order, they must immediately withhold the specified amount from an employee’s paycheck and send it directly to the organization or person who is owed the money until the debt is paid in full. It is important to read the garnishment order carefully to know exactly when to start, how to calculate the amount, who to send it to, and when to stop.

Each month, the creditor must send the employer and employee a statement of how they applied the payments received to the debt. This is not a public record, but the creditor must keep these statements until the garnishment ends.

An employee cannot be terminated or disciplined during the garnishment process. Workers who think the garnishment is unfair or incorrect can contact a debt relief attorney for help. A lawyer can advise them on whether a lawsuit is a good option and help them to fight for their rights.


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