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Knowing Current Garnishment Rules Maintains Compliance

By: Dee Nelson, CPP

At times, the role of the payroll professional can become a balancing act between paying wages for the employer and paying outstanding debts for employees. Effectively and accurately processing employee garnishments can be a challenge for even the most seasoned payroll professional.

The federal wage garnishment law (Title III of the Consumer Credit Protection Act, 15 U.S.C. 1677) protects consumers from unfair or harsh collection practices. This law limits the amount an employer can be required to withhold to pay creditor debts, child support, and alimony payments. Federal law also makes it illegal for an employer to fire an employee who is subject to just one creditor garnishment or any number of child support withholding orders.

Federal laws are not the only regulations - state laws are also in place to protect individuals from harsh wage garnishment practices by creditors. There are different kinds of garnishments tat can be levied against an employee's wages. The way an employer manages multiple garnishments depends on the types of garnishments received, and in what order they are received.

TYPES OF GARNISHMENTS

There are several types of garnishments. The most common are:

Child Support. When child support is owed, there will most likely be a garnishment order issued for current and/or past due support obligations. When this happens, you must withhold wages from the noncustodial parent's paycheck and remit them to the state disbursement unit, which will then send the funds to the custodial parent who is owed the child support.

Student Loan. Students who fail to pay back their loans can be subject to wage garnishment by the federal government or its designated agent. The garnished funds will be remitted to the creditor.

Taxes. Garnishments to pay federal, state, and local taxes may be issued as tax levies. Note that an IRS tax levy does not require a court order, but will come directly from the IRS.

Creditor Garnishments. Credit card companies and other creditors can get a court order for a wage garnishment for repayment of a secured debt.

LIMITS ON GARNISHMENTS

Before obtaining a creditor garnishment order, a creditor must first obtain a judgement in court against a debtor. If the creditor is successful but the debtor does not pay the judgement, a creditor can go back to court and ask for a wage garnishment. If the court grants the garnishment order, it is sent to the employer of record.

If the employer does not respond with either fulfillment of the garnishment order by withholding and remitting or a reason why the garnishment order cannot be followed, the employer can be held liable for the debt.

Creditors can only garnish a portion of a debtor's disposable earnings. Federal law sets maximum percentage amounts for creditor garnishments. State laws may impose lower limits than federal laws.

The following funds are not subject to garnishment for debts other than child support, alimony payments, and certain debts owed to the federal government:

• Railroad Annuity and Pension Benefits
• Unemployment Compensation Benefits
• Workers Compensation Benefits
• Certain Armed Service-Connected Disability Payments
• Certain Public Assistance Payments (welfare and supplemental Social Security Benefits)

There are also various types of state benefits that may not be subject to garnishments. These may vary from state to state. In addition to knowing how to determine an employee's disposable earnings and the garnishment limits that apply on a federal level, each state has its own limits and regulations on handling garnishments.