How are you handling wage garnishments?

Michelle Hicks

It’s a subject that can be as embarrassing to address for employers as it is for employees –wage garnishments. No employer wants to make involuntary deductions from an employee’s pay, but in today’s tough economic times, HR experts are predicting an increase in garnishment orders and are warning employers to be ready. Wage garnishments are government-issued or court-ordered, so your organization needs to understand how to process them, as well as how to communicate with employees about this sensitive issue.

Your business could receive a garnishment order from the IRS for an employee who owes back taxes, or from a court order that results from alimony, child support, or even bankruptcy. The most important thing for business owners to know is that you MUST respond to the garnishment, even if the person is no longer employed by you. If you ignore it, you could incur the debt by default judgment, as well as fines. For this reason, you need to make sure that everyone who processes payroll or other administrative functions in your organization, including supervisors, understands the urgency regarding this matter and that they know how and to whom they must escalate a garnishment.

Beyond simply answering a garnishment, businesses will find processing it is also very complex. This is especially true for small businesses with small payrolls. A garnishment can be a one-time occurrence or it may need to span multiple payroll periods. Also, if there are multiple garnishments ordered against an employee, the employer has to determine the correct priority order for the withholdings. And, depending on the type of garnishment, there are different rules in place to protect an employee’s “disposable earnings,” which is an individual’s wage minus legally-required withholdings (such as taxes). Often, professional payroll processors who understand the complexity of the rules need to be employed to ensure you comply with garnishment restrictions.

Supervisors and managers also need to understand how to treat an employee who is being garnished, including the important legal considerations around this confidential issue. The federal Consumer Credit Protection Act (CCPA) and the laws of many states prohibit employers from terminating employees for a single garnishment. In states like Georgia, employees with multiple garnishments are also protected. Work with your legal counsel to understand the state and federal laws that impact garnishments. Although they do create an administrative burden for organizations, and in some instances employees can be charged a fee for processing, if a garnished employee is otherwise performing and contributing to your business success, you will be entering dangerous territory if you consider terminating the individual for that single reason.

It is, however, important to inform an employee when a garnishment is ordered against him or her. You want to be sure the employee has received a notice that a garnishment will be taking place and that the employee has had the chance to object. The employee should also be aware that the garnishment will impact his or her take-home pay and when it goes into effect. If an employee believes he did not receive notice of the garnishment or he has a concern about the amount being correct, you are still obligated to continue withholding according to a valid withholding order unless you receive notification in writing from the agency or court issuing the order that a change is necessary. You can tell the employee to contact the agency or court issuing the order to address his concerns.

Garnishments are unpleasant for employers and employees. If your organization offers financial counseling or employee assistance programs as a part of your benefits, you may suggest those resources to help your employee through this difficult time. The growing trend of involuntary deductions is unfortunate, but real. The implications to employers who don’t comply are also very real and it is in your best interest to have a process in place to respond to a garnishment order before you receive one.

Michelle Hicks is a communications consultant with Buck Consultants.

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