How to Comply With a Creditor Garnishment Order

Author: Ryan F. Donovan

If an employee is subject to a court ordered creditor garnishment to pay an outstanding debt, such as an unpaid loan or credit card amount, a court or agency will send the employer an order requiring it to withhold from the employee's wages according to the terms of the order. An employer that fails to comply may be held liable for serious penalties, damages, court costs and attorney fees. An employer should read the court order in its entirety as soon as it is received to determine all that it entails and to resolve any immediate questions up front. Employers should take the following steps to ensure compliance.

Step 1: Check the Validity of the Order

A garnishment order should first be checked to ensure that the claim it is based on is valid, that all needed information is included, and that the employee is currently working for the employer. Withholding is only required if the order is valid. An order is valid only if the creditor has first pursued a claim in court and provided proof of the underlying debt and the employee has had a chance to object to it.

A valid order should also include:

  • The name of the employee-debtor;
  • The name of the creditor;
  • Whether the order is new, amended or is being released;
  • How much is due; and
  • When and where the employer must send the payment.

If the employee's employment has terminated when the order is received or the named employee never even worked for employer, the appropriate section of the order must be completed and returned.

A good employer practice is to contact the court or agency that issued the order to be sure the order is valid and the stated amount to be garnished is correct. Any unresolved issues regarding validity of the order or how to proceed are best referred to legal counsel.

Step 2: Notify the Employee-Debtor

Notify the employee about the order to ensure he or she is aware of it and has had a chance to respond to it. Explain that amounts will be withheld from his or her pay and that federal or state exemptions may apply.

Step 3: Check Federal and State Garnishment Limits

Determine whether the amount required to be withheld from the employee's wages complies with the federal and/or state garnishment limits. The federal limit for creditor garnishments is 25% of disposable earnings for the week, or the amount by which the employee's disposable earnings for the week exceed 30 times the current federal minimum wage. While some states have lower limits, no state's limit may exceed the federal limit. If applicable state limits are lower than the federal limits, the state limit must be followed.

Disposable earnings is the amount of pay remaining after all legally required deductions are subtracted from gross pay (gross pay includes wages, salaries, commissions, bonuses and other income, such as pension or retirement plan earnings; tips are not considered earnings for garnishment purposes).

Legally required deductions include deductions for federal, state, and local income taxes, Social Security and Medicare tax, the employee's share of state unemployment and disability insurance taxes and amounts withheld for required state employee retirement systems (wages already being withheld for tax levies, bankruptcy or child support orders are not legally required deductions).

Note that state definitions of disposable earnings must also be checked because they may vary from the federal definition.

Step 4: Determine the Priority of Multiple Orders

If the employee is subject to more than one garnishment order, determine which order must be satisfied first and how to allocate the disposable earnings that are available. Do not withhold for a creditor garnishment if a tax levy, bankruptcy order or child support order is already in place that has priority. Instead, contact the issuing court or agency for instructions.

In addition, remember that the garnishment limits apply to all active orders combined for a single employee. Thus, the total amount that can be withheld for all orders combined cannot exceed 25% of disposable earnings, or the state limit if lower. If withholding is already in effect for one order at the 25% maximum, do not withhold for any other creditor garnishments received. Withholding at more than the allowable maximum may reduce the employee's wages below the minimum wage in violation of the federal Fair Labor Standards Act.

Step 5: Implement the Order On Time

Some garnishment orders take effect immediately upon receipt and others need not be implemented until a future pay period. Strictly adhere to the effective date stated on the order to avoid potential liability for late or missed payments.

Step 6: Exercise Caution If Considering Punitive Action

Employees who are subject to more than one garnishment are sometimes demoted, disciplined or terminated because of employer doubts as to the employee's character or because of the administrative burden involved in complying with several orders. Be cautioned that federal law prohibits employers from taking punitive action against an employee who is subject to garnishment for "any one indebtedness" and imposes stiff fines and/or jail time for violations. Note that a consolidation of multiple debts into a single order is often considered a single indebtedness. Note also that some state laws require an employee to be subject to a greater number of garnishments before any punitive action may be taken, while others prohibit any kind of punitive action altogether. Thus, ensure that any action being considered complies with both federal and state law.

Step 7: Continue Withholding Until Instructed Otherwise

Continue to withhold on the garnishment order as written until an amended order or a release is received. If the order is amended, adjust the withholding to the new amount. If a release is received, the employer may stop withholding for that order.

It is not uncommon for employees subject to garnishment orders to complain about either the fact, or the amount, of the withholding. Subject employees may also insist an order has been released or that the debt has been paid off. In such circumstances do not stop withholding for the order. Direct employees who request a reduction or elimination of withholding to the issuing court or agency and/or the creditor named in the garnishment. Any overpayments will be refunded by the issuing entity at its discretion.

If an employee subject to garnishment files for bankruptcy, the employer will typically receive a notice from the bankruptcy court ordering a stay of the withholding. Contact the bankruptcy court if there is any question on how to proceed. Do not stop withholding merely at the employee's word. Employers are liable if they incorrectly stop creditor garnishment withholding.

Additional Resources

Payroll > Involuntary and Voluntary Deductions > Creditor Garnishments