Navigating Payroll Garnishment Rules: A Guide For US Employers

Wage garnishments, such as child support and tax levies, are court-ordered deductions from an employee’s paycheck to repay a debt or meet a legal obligation. US employers must consider wage garnishments to comply with the law and manage payroll processes accurately, but the varied legal requirements from one state to another can be confusing. 

The specific requirements for wage garnishments impact both employees and employers, yet there is a sensitivity around the deduction as employers may feel stressed or embarrassed. Even so, it’s important to understand the diverse legal requirements for wage garnishments across jurisdictions to ensure compliance and avoid potential legal issues. 

By highlighting employer responsibilities, potential pitfalls, and best practices for payroll and wage garnishments, this guide helps US employers easily navigate payroll garnishment. 

Disclaimer: This content is for informational purposes only and does not constitute legal or tax advice.

Understanding wage garnishments

Wage garnishment is a type of debt collection method whereby the court issues payroll garnishments, instructing an employer to withhold a specific amount of money from an employee’s paycheck. The deducted amount is sent directly to the organization or person who is owed money, and the process is continued until the debt is fully paid. 

There are different types of wage garnishments, and each type of garnishment has specifications, such as different maximum limits. Common wage garnishments include the following:

• Child support
• Tax levy for unpaid taxes (IRS or state)
• Student loan
• Administrative garnishments for non-tax debts owed to the federal government
• Consumer debt (such as credit card debt)
• Spousal support (alimony)
• Unpaid judgments (such as lawsuits)
• Government debt (such as overdue fines or penalties)
• Bankruptcy (court-ordered)
• Unpaid childcare expenses
• Unpaid medical bills

Each of these garnishments serves a purpose, going toward unpaid child support or alimony, outstanding debts, defaulted loans, and unresolved consumer debts. Courts issue wage garnishments to fulfill a legal purpose, acting as a mechanism to ensure individuals meet their financial obligations through regular deductions from their paychecks. 

Hiring employees in the US demands an updated understanding of wage garnishment laws, limits, and requirements—especially when hiring across multiple states where these details may differ. 

Exemption amounts, types of debts, priority of garnishments, and garnishment notice requirements are all details that may differ from one state to another. Employers should also be aware of administrative procedures and the statute of limitations, as these details impact compliance with federal and state regulations.

Employer responsibilities

US employers are responsible for ensuring that wage garnishments are properly withheld and paid on time as required by the law. Any delay or failure in doing so may result in penalties and legal actions against the employer. Here’s a closer look at their responsibilities.

Legal obligations

First, employers must review the order to ensure it is valid and complies with all legal requirements. The employer must notify the employee of the garnishment amount and any rights to contest the garnishment. 

Once confirmed, employers must calculate and withhold the appropriate amount from the employee’s wages and make timely payments to the appropriate entity. With multiple garnishments, employers must prioritize and allocate funds according to federal and state laws. 

Employers must protect employee exemptions throughout the process, such as exemptions for low-income earners, and maintain accurate records of all garnishment orders (and payments made). Employers are also responsible for confidentiality, ensuring that the garnishment details are only shared with team members who need to know, such as the payroll team. 

Calculating garnished wages

Employers must understand the percentages allowed for various debts and comply with the allocated wage garnishment limits.

While these details may vary, Title III of the Consumer Credit Protection Act (CCPA) stipulates the following details for ordinary garnishments, indicating the maximum amount of money deducted from each pay period.

• Garnishment is limited to 25% of an employee’s disposable earnings.

OR

• The amount by which an employee’s weekly disposable income exceeds 30 times the federal minimum wage.

Note that certain bankruptcy court orders, debts due for federal taxes and state taxes, or voluntary wage assignments don’t apply to the above calculation. 

Disposable earnings refer to the amount remaining after the employer has withheld all payroll deductions required by law, such as payroll taxes, Social Security and Medicare taxes. 

In addition, some debts, such as child support payments or alimony, may result in higher garnishment percentages in some instances. For example, employers may garnish up to 50% of disposable earnings for child support or alimony. It is the employer’s responsibility to understand the specific requirements while also protecting low-income earners. 

Calculating wage garnishments requires expert knowledge of the following process:

• Responding to the relevant court or government agency about specific wage garnishment regulations
• Understanding and applying the specific rules for each wage garnishment
• Following state laws and applicable regulations to make accurate and timely withholdings.
• Processing multiple garnishments in order of priority
• Minimizing administrative errors that put the employer and employee at risk of non-compliance
• Addressing employee questions and concerns with transparent and easy communication.

Potential pitfalls to avoid

Processing wage garnishments can be a complicated and delicate process. The following common mistakes often occur, leading to non-compliance and the repercussions. 

Failing to review garnishment orders

Employers begin garnishing wages as soon as they receive the order and continue until the issuing court or agency tells them otherwise. Overlooking or misinterpreting important details in garnishment orders can lead to errors in calculations and compliance. 

Delayed employee notice

Communication is important in the wage garnishment process, yet many employers fail to notify employees about garnishments in a timely manner. Neglecting to notify employees about garnishments or not providing clear information about the process can lead to confusion and employee dissatisfaction. 

Incorrect deduction calculations

Wage garnishments require specialized attention from a payroll team member who is updated on rules and regulations. Without expert knowledge, there’s a higher risk of errors when calculating the withholding amount, leading to under- or over-withholding.

Ignoring exemptions

Exemptions exist to protect the financial stability and basic needs of those facing financial hardships. Failing to consider exemptions for low-income earners or other legally protected income can lead to excessive garnishments that put employees in a financially difficult position.

Missing deadlines

Timelines are crucial when processing wage garnishments. Employers who do not submit withheld funds to the appropriate agency within the timeframe can face legal consequences and additional penalties. 

Non-compliance with garnishment laws can lead to legal penalties, fines, and potential employee lawsuits. There is also the risk of reputational damage and even sanctions imposed by regulatory authorities. 

Stay ahead of payroll compliance with Deel’s global payroll compliance checklist.

Best practices for employers

Employers are vital in ensuring accurate and lawful withholding of wage garnishments. The following best practices lay a solid foundation to avoid legal complications, protect the employee’s rights, and maintain a smooth payroll process. 

Establishing effective processes for handling garnishments

Drafting clear policies and procedures for handling garnishments promotes efficiency, compliance, and fairness throughout the process. A well-defined procedure ensures that wage garnishment orders are promptly reviewed, accurately calculated, and consistently applied. 

The following details should be included in a wage garnishment procedure:

• Garnishment order review to verify the validity and accuracy of each order
• Employee notification about the wage garnishment and any applicable rights
• Clear and consistent method for calculating the amount and withholding based on state and federal laws
• Timely remittance to the appropriate creditor or agency
• Thorough record-keeping of all related documentation

A standardized process helps avoid errors, meets legal obligations, and protects employees. 

Training HR and payroll teams on compliance

Navigating wage garnishments can be complicated due to the intricate legal requirements involved in the process. Errors can lead to legal liability and financial struggles, so HR and payroll teams should be fully acquainted with requirements and obligations.

Providing comprehensive training empowers HR and payroll staff with the knowledge and skills to understand the intricacies of garnishment laws. Training should include accurately calculating deductions, ensuring timely and lawful processing of garnishment orders, and staying updated with changing regulations. 

A well-informed and compliant workforce will help your company mitigate risks, protect employees, and uphold the employer’s reputation for ethical and responsible business practices.

Utilizing technology for efficient wage garnishment management

Leveraging technology saves employers time and resources while meeting legal obligations and maintaining a seamless payroll operation. 

For example, working with human resource information system (HRIS) tools helps streamline the wage garnishment process and enhance compliance efforts. Modern payroll and HRIS software solutions help automate the calculations and withholding of garnishments, ensuring accuracy and reducing the risk of human error. 

Payroll systems also generate reports, track garnishment orders, and provide reminders for critical deadlines. These features improve efficiency and reduce the time burden on HR and payroll time. Another way that technology contributes to efficient wage garnishment management is through the secure storage of documents, streamlining the record-keeping and compliance process. 

Impact on the employer-employee relationship

Dealing with wage garnishments will have an impact on the employer-employee relationship. The impact can be positive or negative depending on how the team handles the process. 

For example, wage garnishments can strain the employer-employee relationship due to financial stress and privacy concerns. On the other hand, handling wage garnishments with sensitivity and adhering to compliance alleviates this stress and makes the process easier to navigate. 

Consider the following tips when moving forward with wage garnishment.

• Communicate transparently with affected employees to build trust, alleviate concerns, and demonstrate empathy
• Understand the employee’s local wage garnishment laws and rights to show that you respect and support the employee’s legal protections and financial stability
• Maintain confidentiality while complying with legal requirements to respect the employee’s privacy and minimize potential embarrassment or stigma associated with financial challenges

Simplify US payroll with Deel

Understanding the intricacies of US payroll is crucial for employers to ensure compliance with complex tax, wage, and labor laws while maintaining accurate and efficient payroll processes to support employee satisfaction and financial well-being.

Implementing HR and payroll technology helps streamline the process while avoiding common pitfalls. Deel offers a robust solution for global teams, offering an integrated system to manage various aspects of payroll and HR activities—from hiring employees and onboarding candidates to managing benefits and, of course, dealing with wage garnishments.

Discover how Deel integrates wage garnishments with other essential HR and payroll features in a single platform. Book a demo today.