If you’re like me, the first time you heard about a wage garnishment on a check, you may have thought about a check stub with a little something extra to make it more aesthetically pleasing. Perhaps a fancy border or even a few extra dollars sprinkled in for enjoyment. But unlike a garnish in the culinary world, a wage garnishment is not something pleasing to the eye. In fact, it will always mean that your employee will be taking home less of their hard-earned wages, and it means that you, their employer, have to make sure it gets taken from them. In short, a wage garnishment is a court-ordered deduction that must be paid to a third party.
Types of Wage garnishments
There are several different kinds of wage garnishments: Federal Tax Levies, Child Support orders, Federal Student Loans, State tax levies, Bankruptcy orders, and general garnishments (which are typically from a private debt holder that has used the court to issue mandated collection). Each type has its own limitations on the percentage of wages that can be withheld, making them a little complicated to navigate as an employer. When you receive any of the court-ordered garnishments, however, these are the first two questions to answer:
- How much do I need to withhold from my employee’s check?
- Where do the withheld funds need to be sent?
Let’s take a moment to talk through each of these questions and how you can answer them.
How to calculate the amount of a wage garnishment
When you receive a wage garnishment letter, you’ll see that the court order will provide the exact amount that you should withhold every paycheck. But there are limitations on the amount that can be garnished based on the amount of money the employee makes. These limits are in place to basically ensure the employee still has some take-home pay. In rare cases like tax levies and some bankruptcy orders, those limitations are void and the court order can indeed reduce an employee’s check to zero. However, for most garnishment types, you must be aware of the limits on employee pay to withdraw the correct amount.
A key part to understanding any of the limitations that are on a garnishment is the idea of disposable income. For me, the term “disposable income” once again conjures thoughts of nice things like vacations and fine dining. However, in the context of wage garnishments, it means something totally different. An employee’s disposable income is their gross wages minus all mandatory withholding (like federal and state taxes, social security, Medicare, and other garnishments of a higher priority). It’s essentially what their net pay would have been if they did not also have a garnishment coming out of their check. An important note: an employee’s disposable income should be calculated before voluntary deductions like 401K contributions, elected medical insurance, or other ancillary deductions. Additionally, tips do not count towards disposable income because they cannot be garnished.
Simply put, disposable income is what the initial limitation for the garnishment is based on. For general garnishments, there is a minimum take home pay of $217.50 per week and the garnished amount must be no more than 25% of an employee’s disposable income. For child support orders, the limitation is 50%-65% of disposable income. That range accounts for state differences, the number of children being supported, and the existence of any past due child support. Every child support order will provide the exact percent to use, so read through the paperwork carefully.
For those of you keeping track at home, I glided past the idea of different garnishments having a different level of priority. In the rare and unfortunate event that your employee has multiple wage garnishments, there is a specific order in which you should deduct wages until the minimum take home is reached. Tied for first priority are federal tax levies and child support—whichever you get first will take precedence. Following those are federal student loans, state tax levies, and general garnishments. If there are ever multiple general garnishments, 25% of disposable income (or whatever excess the employee has over the minimum take home pay) is paid to one of the debt agencies in the order received until that debt is paid in full, and then the next garnishment will start being paid.
Making wage garnishment payments
Once you’ve calculated the accurate deduction, making the garnishment is quite straightforward. Every order will have an address to send the payments to. Once you have calculated and deducted the appropriate amount from the employee’s check, you can write or print another check for the amount you calculated. An important detail to include with each payment is the Remittance ID found in the order, which allows the Agency to know which garnishment the payment is for. Write the Remittance ID directly on the check.
Some states allow you to deduct a few additional dollars as an administrative fee for the time and effort it takes you to make these garnishment payments. The state provides a maximum amount to take; it is completely up to the employer’s discretion how much to take under that. Enough to cover postage, perhaps?
A simpler solution: Outsource your garnishment to a payroll company
Finally, allow me to garnish this blog with a time-saving solution that will save you the headache of all this calculating yourself: if you work with an outsourced payroll company, they will completely take care of the garnishment details for you. It’s as simple as forwarding the court order to your provider and they will handle the rest.
Running a business takes a lot of time and energy. The last thing you want to do is stress about whether or not you calculated the correct wage garnishment amount from your employees. At Whirks, we aim to educate business leaders and simplify their processes. Book a call with us to see how we can help streamline your operations, or check out our article on the “3 Common Payroll Mistakes Small Business Owners Make.”