What is a wage garnishment? Simply put, it is a legal procedure by which a person's earnings are required by court order to be withheld by an employer for the employee’s debt owed to a creditor. Wage garnishments are sometimes also known as wage citations, and they necessarily involve a mandatory court order. They are thus different from wage assignments and wage deductions, which are voluntary employee/employer arrangements.
It is estimated that 7% of individuals in the U.S. are subject to a wage garnishment.[1] That is approximately 1 in 14 people. Consequently, while wage garnishments are not prolific, they are more common than many people believe. Thus, if your nonprofit has employees, it is likely to receive a wage garnishment at some point.
What should a responsible nonprofit employer do upon receipt of a wage garnishment notice? If noncompliant, an employer can be held liable for an employee’s debt – so first, take such matters seriously. The employer should complete and provide the required paperwork, possibly with an attorney’s assistance. What else should employers know and do? Read on for key questions and answers about properly handling wage garnishments.
How do creditors get wage garnishment orders?
Before an employer receives a wage garnishment notice as an attempt to collect money owed by an employee, an underlying court case is litigated between the employee and his or her creditor. The case may concern a car loan, other contract claim, child support, taxes, consumer debt, or other matters involving money in dispute.
If the creditor is successful in that litigation, the creditor will obtain a court judgment allowing the creditor to seek money from the employee. If the employee does not immediately pay the judgment, the creditor may seek recovery through the employee’s wages – essentially interrupting the employer’s compensation disbursement to the employee for work performed.
To obtain such recovery, the creditor must ask the court to issue a wage garnishment order to the employee’s employer. This order will instruct the employer to deduct a certain amount from each paycheck paid to the employee and to send that amount to the creditor, until the debt is fully paid. Garnishments are not uncommon. Creditors can gain a stream of revenue to recover payments owed – so long as employee/debtor remains gainfully employed, so the legal pursuit is often worth the creditor’s efforts.
Why are employers subject to wage garnishment orders?
A garnishment is a legally sanctioned option for helping creditors to obtain financial recovery. Wage garnishments are widely allowed under state law, so that creditors (known as “judgment creditors”) can gain access to an employee’s money (as earned through their employment) prior to the employer disbursing the funds to the employee (known as the “judgement debtor”).
Two important distinctions apply. First wage garnishments (and wage citations) are not wage deductions (or wage assignments). The term “wage deduction” refers to an agreement between an employee and an employer allowing for payroll deductions such as for taxes or for repayment agreements (e.g., damages to work equipment or improper reimbursements) and other financial obligations owed directly by the employee to the employer. Second, and as more fully addressed below, wage garnishments are subject to strict financial limits as a public policy matter – so that employees are not unduly burdened by their debts. The employer is typically responsible for identifying such limits (further discussed below), as a matter of complying with the wage garnishment order.
Must employers respond to the wage garnishment?
Yes, a wage garnishment is a legally enforceable court order. Employers must respond—typically through a written garnishment response filed with the court and served on the creditor and employee. Generally, an email or letter to the creditor or their attorney is not sufficient. Failure to comply with such requirements may result in a judgment issued against the employer, up to the full amount owed by its employee. This legal obligation is quite serious!
What information is typically requested from the employer?
Wage garnishment orders usually involve a set of employment status and compensation questions for the employer to answer. These questions may include whether the employee (as judgment debtor) is currently employed, how often the employee is paid, and the amount of pay. The order also usually directs the employer to calculate the withholding amount, based on a withholding formula that takes various factors into consideration.
If an employer does not employ the judgment debtor, the employer should respond as such. If the employer does employ the judgment debtor, then a full response is required—followed by legally compliant wage withholding and corresponding remittance to the judgment creditor. Either way, the employer needs to make sure that response is correctly submitted as required by the court and doing so may warrant attorney involvement.
What duties, beyond filing a response, does an employer have?
Upon receipt of a wage garnishment, the employer is required to determine if the employee makes sufficient wages for the employer to withhold funds from an employee’s paycheck. This calculation, discussed in detail below, should be made each pay period as the employee’s pay may change or other details may affect the calculation. Even if the employee does not make enough money for the employer to withhold an amount when the garnishment is received, this calculation should still be made each pay period moving forward. If an employer uses a payroll service provider such as ADP, this provider will likely be able to make these calculations upon provision of the wage garnishment’s details.
How much should employers withhold for wage garnishments?
State and federal law strictly limit the amounts that are to be withheld for wage garnishments, essentially to not unduly strain an employee’s finances. The court order should provide a formula for calculating the withholding amount. For example, Illinois law limits the amount that can be withheld to (1) no more than 15% of the debtor’s gross income before taxes or deductions, or (2) the amount of earnings minus deductions required by law that exceeds 45 times the Illinois minimum wage.[2]
As part of an employer’s legal compliance, it should notify the employee of such wage garnishment action. To the extent an employee may thereafter object to the wage garnishment, such matter may be addressed through the underlying court proceeding or potentially through the employer’s corrections in the court garnishment form as warranted.
How should employers handle withheld funds from the employee’s paycheck?
If the employee makes enough money to have funds withheld from the paycheck, the employer is required to hold those funds until a court issues an order with instructions on where to remit those funds. Funds are usually remitted to the judgment creditor’s attorney.
What if an employer receives more than one wage garnishment for an employee?
Unfortunately, when an employee has a judgment against them for failure to pay a debt, it is not uncommon for other creditors to obtain a judgment against that employee for other debts. Thus, an employer may receive multiple garnishments for the same employee.
Generally, the garnishment that was received first gets paid first. The only exception is a garnishment for spousal or child support. A garnishment for spousal or child support gets first priority.
When multiple garnishments are issued, employers should withhold the appropriate amount each pay period and, upon court order, remit that amount to the garnishment with first priority until that garnishment is paid or otherwise terminated. The employer should then withhold the amount for the next garnishment in line and so on until all garnishments are paid. A payroll service provider can assist with tracking the priority of garnishments.
For how long must employers withhold and remit funds for the wage garnishment?
If subject to a wage garnishment order, an employer is required to (1) calculate potential withholdings and (2) withhold funds from the employee’s paycheck accordingly until one of several events occurs:
1. The employee ends employment with the employer;
2. The judgment creditor notifies the employer that the judgment has been fully satisfied; or
3. The court issues a subsequent order ending the garnishment.
Employers therefore need to remain attentive to further developments. If the employer inadvertently continues paying the creditor after receiving notice that the garnishment has ended, the employer could be liable to the employee for lost wages. Likewise, if the employer stops withholding and remitting garnishment amounts while the garnishment order is still in effect, the employer could be liable to the creditor for the missing amount.
Are employers legally allowed to terminate employees based on wage garnishments?
No. Employers are prohibited by law from taking any adverse employment action against the employees because of the garnishment. Such action is known as unlawful retaliation. The garnishment paperwork may seem like a burden and related risks may be unwelcome, but employers may not avoid them by terminating employees with garnishments. Note, however, that employers are legally allowed to otherwise discipline such employees as they would ordinarily do absent the wage garnishment.
Wage garnishments can easily get tricky, but they are part of any employer’s legal compliance responsibilities. Employers thus should be ready to handle them properly—upon initial receipt of a wage garnishment notice, through completion and submission of the wage information documentation, and onward until the garnishment period ends.
Must employers keep track of all this garnishment information?
Yes, but you may already be using tools that can help. As mentioned above, if the employer uses a payroll service provider, that provider will likely be able to track garnishments and perform the necessary calculations once the garnishment is entered into the system. If an employer can use such tools, it will still need to have systems in place to receive and respond to new garnishments, enter the garnishments into the payroll system, and make any adjustments based on subsequent court orders or other notices.
Key point: Ultimately, the legal responsibility rests on an employee’s employer to ensure compliance with a wage garnishment order.
May employers recoup any amount for the related expense of complying with a wage garnishment?
Yes, many states allow employers to take a percentage, usually around 2%, of the funds withheld from the employee as a “fee” for administering the garnishment. But if the employee does not make enough for funds to be withheld, then unfortunately the employer may not collect any amount from the employee.
[1] “The U.S. Wage Garnishment Landscape: Through the Lens of the Employer,” ADP Research Institute (2017).
[2] 735 ILCS 5/12-803
