Record numbers of bankruptcies and foreclosures have been making a big splash in the news for the last four years. However, a quieter phenomenon—one fraught with traps for unwary employers—is a concurrent and growing trend of court-ordered or government-issued wage garnishments.
A wage garnishment typically is a court order requiring an employer to deduct or withhold a specified sum or percentage of an employee’s wages. The withheld amount is paid to a third party to satisfy indebtedness (usually in the form of a judgment) against the employee. The indebtedness often relates to child- or spousal-support payments, but also can be based on an unpaid loan or other debt, including those relating to bankruptcies and back taxes.
Here's some practical advice on what to do when someone wants a piece of your employee’s paycheck.
Always answer the garnishment!
Even if you determine that you do not have to make the specified deductions or withholdings—because the individual is no longer your employee, is in bankruptcy or is subject to other garnishments that take precedence—you still must answer and explain the reason.
Ignoring the garnishment means the employee’s debt becomes the employer’s debt by default judgment.
Learn the kind of garnishment
Determine whether the garnishment received is for a continuing garnishment. An order for a noncontinuing garnishment requires a single payment, even if for less than the amount sought.
In contrast, an order for continuing garnishment remains in effect for 180 days and requires a series of payments unless or until the garnishment is satisfied or other circumstances warrant discontinuation of the payments.
Don’t fire the employee
Do not discharge an employee because of a first garnishment. The federal Consumer Credit Protection Act (CCPA) and the laws of many states prohibit employers from discharging an employee based on a single garnishment (or multiple garnishments for a single indebtedness), although an employee’s CCPA protection is less certain when there are garnishments for multiple debts.
In Georgia, for example, the law prohibits employers from discharging employees whose earnings have been subjected to garnishment for any one indebtedness.
Learn the kind of indebtedness
Determine the type of indebtedness underlying the garnishment, as the amount of disposable earnings subject to garnishment varies. “Disposable earnings” means wages minus legally required withholdings.
In this regard, the CCPA limits the amount of earnings that may be garnished in any workweek or pay period to the lesser of 25% of disposable earnings or the amount by which disposable earnings are greater than 30 times the federal minimum wage.
On the other hand, in the case of child support or alimony, the CCPA allows up to 50% of an employee’s disposable earnings to be garnished if the employee is supporting a current spouse or child, and up to 60% otherwise. An additional 5% may be garnished for support payments more than 12 weeks in arrears.
The CCPA’s garnishment restrictions do not apply to bankruptcy court orders and debts due for federal and state taxes.
How to respond
Employers should design and implement systems to identify immediately upon receipt any court-ordered or government-issued wage garnishments or levies. Make sure they are quickly routed to the individual responsible for ensuring compliance. Don’t allow garnishments to linger in someone’s in-box. Instead, train all supervisors and managers to immediately forward the paperwork to payroll or the HR office.
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