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The IRS has put employers on notice, as of February 2018. It is now mandatory for companies to withhold an employee’s earnings from the day they are paid until the end of their first year in a job unless otherwise instructed by the company or written agreement. The new rule means that employees might be left with less money during difficult times, and could have more at risk if they leave their jobs quickly before receiving payment back.
The “employer did not notify me of wage garnishment” is a problem that many employers face. This article will teach you what to do if your employer does not notify you about the withholding order.
A court-issued earnings withholding order requires businesses to withhold and remit money from an employee’s salary to pay a creditor for an overdue debt. Past due college loans, late tax payments, and even unpaid child support are instances of this debt. Employers should only withhold what is necessary in the order in order to avoid responsibility.
Consider utilizing payroll software like Paychex if you need assistance processing a garnishment for an employee. You may add the garnishment service as an add-on to your Paychex payroll plan when you need it and remove it when you don’t. A expert will ask you to provide the wages withholding order, which they will handle themselves. To schedule a free consultation, go to the website.
Paychex is a great place to start.
How Do Withholding Orders For Earnings Work?
Wage garnishment is what earnings withholding orders are effectively. When creditors find accounts uncollectible, they have the legal authority to sue the person who is responsible for the debt in order to recover the monies owing. A judge will issue a garnishment order to the person’s employment with instructions on how much money to withhold, how long to keep it, where to deliver the monies, and so on, after the creditors have filed adequate proof to the court proving the debt is legitimate.
Wage garnishment is governed by federal statutes as well as state rules. Non-child or spousal related garnishment orders are typically limited to 25 percent of an employee’s income; child support orders are typically limited to 50 percent to 65 percent of an employee’s income and are issued via income withholding orders, which are issued by state agencies to assist parents or spouses in collecting financial support. A set of instructions is normally included with the garnishment notice so that you know how to utilize the information on the paper.
On Earnings Withholding Orders, you’ll find a lot of common information.
Earnings withholding orders are not all the same; the type you get is determined by your state. Regardless, the majority of garnishment orders include the same information.
On an earnings withholding order, you should expect to see the following:
- Information about the plaintiff: The plaintiff is a creditor who is garnishing the employee’s pay for a past-due obligation. Regardless matter whether it’s a person, a firm, or a government organization, the garnishment order will contain a name (for past-due taxes).
- Information about the defendant and the debtor: The defendant is the individual who failed to pay the debt. To assist you verify that the debtor is your employee, provide the debtor’s name, address, and Social Security number.
- This is the state and/or county in which the garnishment order was issued. Except for those involving government institutions, such as student loans and taxes, most orders are carried out by the courts.
- The debt amount refers to the entire amount of money that the creditor wishes to recover. When a creditor chooses to sue, they almost always sue for the whole amount owing.
- Details on withholding will be provided to assist you in calculating the amount you should withhold, such as 25% of the employee’s salary.
Garnishment orders vary in appearance based on the state in which they were issued, but they should always include enough information to identify the debtor and creditor. It should also be evident that you are the document’s intended receiver. Earnings withholding orders in most states provide at least a short set of instructions on how to handle them.
Creating an Order for Withholding of Earnings
You must first get an earnings withholding order before you can handle it. The garnishment order is usually sent through certified mail, although in certain places, such as California, the sheriff or marshal personally delivers it to the employer’s address.
The court or agency that issued the order usually wants a written response within a certain amount of time, which might be as little as five days, so you must move promptly. Before agreeing to comply with the requirements of the withholding order, be sure the debtor is presently on your payroll. You’ll also need to disclose how much money the employee makes, if the person has any additional garnishments, and so on.
If the garnishment notice doesn’t specify a fixed amount to withhold, as is often the case, you’ll have to calculate according to the instructions. Typically, this implies you’ll have to deduct a set proportion of the employee’s pay.
To stay in compliance, you must begin withholding the employee’s wages on their next paycheck after receiving the garnishment order. You’ll submit the money in accordance with the document’s directions. Make sure it’s sent to the proper creditor and address, and that you’re paying the appropriate amount on time. Make sure you’re utilizing the correct information from the writ of garnishment (another word for garnishment order).
Garnishments Resulting from Income Withholding Orders
Garnishment orders are issued by creditors for a variety of reasons. The longer an employee fails to pay a debt, the more likely their income may be garnished, particularly if the obligation was issued by a government entity, such as student loans. Some debts, such as overdue child and spousal support, may be garnished from a paycheck, but they may be subject to different restrictions and handled via a distinct sort of order called an income withholding order.
The following are the most typical sorts of debts for which a garnishment order may be issued:
If your employee fails to pay federal, state, and/or local taxes on time, garnishment may be used to collect them. Legal orders may be issued by government entities without going through the courts.
Student loans that have defaulted are past due; this does not include loans that are in deferral or deferment.
Medical debt, outdated credit card debts, and so forth are examples of this.
Child and spousal support are included in financial support orders. These are the most important garnishments, and they take precedence over other debts.
If your employee’s taxes, student loans, or other debts go unpaid, you may be issued an earnings withholding order. Children’s or spouses’ financial support requirements, on the other hand, are a bit different. Although both are meant to advise companies to withdraw cash from an employee’s salary to satisfy the amount owing, you’ll get an income withholding order rather than an earnings withholding order.
It’s crucial to remember that, in addition to federal restrictions, several states have their own rules governing earnings withholdings. Before making any deductions, double-check with your employee’s individual state.
Orders for Income Withholding vs. Orders for Earnings Withholding
The words “income withholding order” and “earnings withholding order” are often used interchangeably, however there are distinctions. With the exception of debt for financial assistance, an earnings withholding order, also known as a wage garnishment order, is used to collect on a variety of debts. State authorities may issue income withholding orders to assist parents or spouses in collecting financial support that is owing to them, even though the employee is not in arrears.
Pay careful attention to any documentation you get requesting wage garnishment from an employee. For income withholding orders, you may withhold more than twice as much money as you can for earnings withholding orders. This is because the court places a greater emphasis on the well-being of children and other dependents than on the financial well-being of a typical creditor.
Maximum Garnishment Amounts for Withholding Orders on Earnings
The amount of money you may lawfully withhold to comply with a garnishment order is governed by federal and state rules. Before completing your payroll, it’s critical that you understand how much may be withheld as an employer. It depends on the overall amount you pay the employee and if the loan is for financial assistance or anything else. If their disposable income is too little, such as less than $217.50 weekly, you won’t be allowed to withhold any of their salary per a garnishment notice.
For each level of disposable income, here’s a breakdown of the garnishment amounts you may process:
Maximum Garnishment Amounts of Disposable Income of Employees
* These restrictions do not apply to certain bankruptcy court orders or garnishments to collect debts owed to the government for state or federal taxes. Garnishments made in response to court orders for child support or alimony are subject to different restrictions.
These restrictions serve to guarantee that workers have enough money to live comfortably. These restrictions assist workers who earn below-poverty salaries in particular. If a person earns less than $218 per week, they are most certainly already suffering, and being obliged to pay off an old debt might jeopardize their livelihood.
Paycheck Amounts Subject to Garnishment Examples
Calculating garnishment amounts for workers who make much more than minimum wage is considerably simpler than for those who do not. To decide how much money to withhold, you may normally add a percentage to their salary. Calculations, on the other hand, take a bit longer for low-wage workers.
Based on the current federal minimum wage of $7.25 per hour, below are some examples to assist you estimate the amounts liable to garnishment:
Check out our guide to online legal services if you’d want a trusted legal professional to analyze your legal papers, such as garnishment orders. Companies such as Rocket Lawyer can assist firms in complying with the law in order to prevent legal wrangling and fines. You may receive help with completing company paperwork, obtaining permits, and much more.
Limits on Garnishment Withholding
Other sorts of garnishments, such as child support, student loans, and taxes, have different restrictions. If an employee has to pay child or spousal support, you may deduct far more than 25% of their salary.
Additional garnishment withholding restrictions are as follows:
- If an employee is presently supporting a spouse or dependent, creditors may garnish up to 50% of the employee’s disposable earnings. You may be obligated to withhold up to 60% of the worker’s wages if they are not supporting anybody. You may withhold 65 percent if the employee is overdue on payments for more than 12 months.
- You may withhold up to 10% of your employee’s disposable income if their student loans are in arrears.
- Aside from the US Department of Education, other federal agencies or collection businesses under contract with the agencies may order you to withhold up to 15% of an employee’s disposable income for nontax debts.
When estimating employee garnishment amounts, it’s important to be cautious. Varying forms of wage garnishments need different amounts of withholding. Any additional commitments an employee may have may have an impact on the amount of money you may withhold. When computing garnishment amounts for nonfinancial support-related payments, for example, child support payments must be subtracted from disposable income.
Garnishment Processing Laws for Employers
Aside from the restrictions on withholding amounts, the legislation also protects workers against discrimination or mistreatment as a result of judgments, which are court orders that provide creditors the authority to collect on outstanding debts made against them. If you ever fire an employee whose income is garnished, be sure to keep track of the reasons why, since you can’t lawfully fire someone simply having a single garnishment order against them.
If you obtain several earnings withholding orders for a single employee, depending on your state’s regulations, you may be able to terminate them lawfully. Employees who get more than one wages withholding order are not protected from being fired under federal law. Some state laws, such as Florida’s, do, though. In Florida, it is illegal to terminate an employee’s job for garnishment-related reasons. Failure to comply may result in fines, penalties, and back wages totaling thousands of dollars. You may be condemned to prison under exceptional circumstances.
Penalties for Failure to Comply With Withholding Orders
If you don’t react to a garnishment notice in a timely manner, the court may hold you responsible for your employee’s debt. This might also happen if you fail to make timely payments or pay the incorrect amount.
The Society of Human Resource Management (SHRM) cited two court decisions in which employers were found accountable for the debts of their employees:
An employer was held liable for more than $10,000 of an employee’s debt in a case in Oklahoma. Despite the fact that the employer’s response to the garnishment order was timely, it included incorrect information and was judged “defective.” The company was served with a second garnishment order for the same employee, but neglected to respond or begin withholding wages.
It might be aggravating to receive a garnishment notice or an income withholding order. It almost certainly adds to your workload and that of some of your staff, lowering productivity and putting your finances at danger.
If you’d rather avoid the garnishment altogether, see our list of professional employer groups (PEOs). A PEO serves as your co-employer, submitting your payroll taxes and garnishment orders under its tax identification number.
Conclusion
An earnings withholding order is a legal document that employers obtain in regards to outstanding debts owed by their workers. Employers are compelled to withhold payments and send them to the relevant creditor whether the order is issued by a court or not. Employers may be liable for noncompliance with federal and state restrictions that limit the amount that may be withheld.
Consider employing a payroll provider like Paychex if you need assistance processing a garnishment order. It has HR and payroll professionals that may assist you in avoiding liability for an employee’s unpaid debt. The garnishment order will be submitted to your representative, and it will be handled as needed. Call now for a no-obligation quotation.
Paychex is a great place to start.
A “withholding order” is a legal document that employers can use to withhold income tax from their employees’ paychecks. The withholding order allows employers to take the money out of an employee’s paycheck and send it to the IRS. Reference: what is a withdrawal of withholding order.
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