If an employee owes money to a creditor, the creditor may obtain a legal order for garnishment. This garnishment can come from the employee’s wages. If you help to manage employee payroll, you should understand your organization’s responsibilities once an order for garnishment of an employee's wages is received.
There are seven common types of wage garnishments. They are:
Child Support: The highest volume of garnishment orders employers receive are child support garnishments. When wages are garnished for child support collection, the transaction is usually coordinated with employers by the courts and a government agency. Child support garnishment laws can vary state to state.
Creditor Garnishments: When an employee is delinquent on payments for debts such as credit cards or loans, the creditor may take the debtor to court and seek a wage withholding order. The creditor must obtain a court judgment stating that they're owed money or that the employee has defaulted on a debt.
Bankruptcy Orders: According to recent research, 97 percent of all bankruptcies are personal filings rather than business filings. While a bankruptcy filing may provide immediate protection against most garnishment of wages, it does not protect an employee from future garnishments once the bankruptcy court has ordered a repayment plan (Chapter 13 only). Garnishments approved after the Bankruptcy repayment plan can still be due and collectable. Certain garnishment types are not included with Bankruptcy filings, such as tax liens, child support, student loans regardless of the date of effectiveness and should still be collected on. Consult with the Issuing Agency if clarification is needed.
Student Loans: The U.S. Department of Education will sometimes contract with collection agencies to enforce and collect on defaulted student loans. Creditors that own student loans guaranteed by the federal government do not have to get a state court judgment before attempting to garnish an employee’s wages.
Tax Levy Garnishments: These garnishments can be issued at the federal, state, or local level. Each state differs in its requirements and those laws may differ from federal levies. An IRS levy permits the garnishment of wages to satisfy a tax debt. If you receive an IRS notice of levy against your employee, it is important that you comply with the levy.
Voluntary Wage Assignment: Sometimes an employee voluntarily agrees to have money withheld from his or her wages. These wage assignments do not involve a court order and are not governed by state law. With voluntary wage assignments the employee specifies the amount to be withheld. These are not subject to any calculations and could take all the Employee’s net remaining earnings.
Involuntary Wage Assignment: Simply put, an involuntary wage assignment is a non-consensual arrangement under which a creditor has the right to demand wages earned by a debtor. Wage garnishments and wage assignments have several features in common, but they are not always the same thing. An example of an involuntary wage assignment different from those previously noted would be a court order used to collect unpaid court fines.
It is imperative that you become familiar with the applicable laws in the jurisdiction where the wages are earned. Federal and state laws can differ on how much of an employee's wages are protected from garnishment. As an employer, you are responsible for understanding the maximum amount allowable for garnishment under applicable federal and state laws. If you are unsure about the laws governing your region, we recommend seeking the advice of the Issuing Agency or your Legal Counsel.