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| Hedley Lawson |
An increase in garnishments due to the national credit problems may have not yet occurred, however, such an increase is likely on the horizon. Garnishment happens when employee wages are affected pursuant to a court order in a judgment in a case involving a debt, such as unpaid child support. Garnishment must occur pursuant to a court order. Once an order is issued, the debtor’s employer should receive a notice of garnishment. Consult Federal and State Laws Under federal consumer laws (15 USC 1671), an employer generally cannot deduct more than 25 percent of an employee’s disposable earnings due to garnishment. Federal law also singles out “favored creditors.” As an exception to the general rule, federal law permits employers to deduct 50 percent to 60 percent of disposable earnings for child support. Outstanding taxes and student loans receive favored treatment in terms of priority.
Consult Federal and State Laws
Under federal consumer laws (15 USC 1671), an employer generally cannot deduct more than 25 percent of an employee’s disposable earnings due to garnishment. Federal law also singles out “favored creditors.” As an exception to the general rule, federal law permits employers to deduct 50 percent to 60 percent of disposable earnings for child support. Outstanding taxes and student loans receive favored treatment in terms of priority.
These situations are only the federal requirements. The federal law explicitly allows states to be more restrictive. A state law could provide, for example, that a garnishment may not amount to more than 15 percent of disposable income. Further, in those states that permit garnishment, the laws vary widely. Therefore, if a company operates in many states, you as a business owner or manager should become familiar with garnishment requirements in all the states in which employees are located.
For example, different states may have different definitions of the “income” out of which the garnishment can be made. Income could include more than straight salary, encompassing bonuses and other compensation.
Business owners and managers need to keep in mind an additional provision of federal law that prohibits an employer from discharging an employee because of garnishment stemming from one debt. If you have an employee with multiple garnishments for multiple debts, you can take action against him or her under federal law, but you must consult state law as well. States may be more restrictive in this area. In any circumstances, a decision to terminate an employee because of garnishments must be made very carefully because it also may raise discrimination issues.
Once you and your staff have familiarized yourselves with state laws, the next step is to set up standard payroll procedures to guarantee that those laws, as well as federal laws, are being followed.
An important thing to remember is that when you have received a valid court order, you must make the garnishment. An employer is subject to penalties for failure to comply with an order. ■
Hedley Lawson is the managing partner of
Aligned Growth Partners, LLC, a strategic, operational and organizational consulting, and executive search firm. Lawson also serves as consulting editor for Jobson’s Business Essentials monthly e-newsletter.
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