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Exercise Caution When Garnishing Wages

By Joanne Deschenaux  9/24/2007
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   Workplace Law Library - Compensation

9/24/07 2:42 PM

Exercise Caution When Garnishing Wages

By Joanne Deschenaux

In light of the recent rise in mortgage foreclosures, this is a good time for HR professionals to review the federal and state laws implicated when HR receives an order to garnish an employee’s wages.

Although Joel W. Rice, an attorney with Fisher & Phillips in Chicago who provides legal counsel on garnishment issues, told SHRM Online in an interview that he has not yet noticed an increase in garnishments due to the national credit problems, such an increase likely is on the horizon. He noted how complicated garnishment can be for HR.

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, Rice said.

Garnishment must occur pursuant to a court order. Once an order is issued, the debtor’s employer should receive a notice of garnishment.

“Where it is tricky for employers,” Rice noted, is when there are a “whole welter of laws regarding how much they can withhold and what has priority over what. An employee may be subject to numerous garnishments, and the employer is stuck in the middle.”

Consult Federal and State Laws

Under federal consumer laws (15 USC §1671), an employer generally can’t deduct more than 25 percent of an employee’s disposable earnings due to garnishment. “If you are already deducting 25 percent and another garnishment comes along, the second creditor has to wait in line,” Rice said.

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. “Commercial creditors fall below that. With respect to ordinary commercial creditors, the first in line gets first crack,” Rice observed.

But these 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, and a few states prohibit commercial garnishments entirely, Rice said.

Further, in those states that permit garnishment, the laws vary widely. Therefore, if a company operates in many states, HR 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 forms of compensation, even discretionary compensation, Rice cautioned.

This may create administrative headaches, and HR professionals may be tempted to wash their hands clean of the situation. But they 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, Rice noted, but you must consult state law as well. States may be more restrictive in this area because “once again, federal law is the floor, not the ceiling,” Rice said.

In any circumstances, a decision to terminate an employee because of garnishments must be made very carefully because it also may raise discrimination issues. “You should ask yourself, ‘Are you treating people the same? Is the discipline fair and equal?’ ” Rice suggested.

Put Procedures in Place

Once HR has familiarized itself with relevant 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, Rice recommended.

An important thing for HR professionals to remember is that when they have received a valid court order, they must make the garnishment. An employer is subject to substantial penalties for failure to comply with a garnishment order.

“Employees may try to cajole you into not deducting,” Rice said, “by saying ‘don’t worry, they’ll take care of it.’ But if you don’t follow the court order, you will be in trouble.”

Joanne Deschenaux, J.D., is SHRM’s senior legal editor.

Related Resources:

A Duty to Dock Pay, HR Magazine, June 2005

Payroll Toolkit

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SHRM Online Workplace Law Focus Area

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