What to do if you need to garnish an employee's wages
It's a fact of life: Not everyone pays his or her bills. Sometimes, when that happens, creditors might turn to a debtor's employer for help through a process called wage garnishment. Garnishment is a court-ordered process whereby a person's property is confiscated to pay a debt; in the case of wage garnishment, that property is one's paycheck. The federal government protects debtors and sets limits on the amount of wages that can be garnished from an individual. State governments, meanwhile, enforce their own, separate debt collection laws.
In the wage garnishment process, there are three parties: your employee (the debtor), the party that's owed money (the creditor) and you, the employer (the garnishee). As an employer, you're legally bound to comply with wage garnishment court orders. It's your responsibility to make the proper deductions from your employee's paycheck and send payments to the creditor. Common reasons for wage garnishment include:
- Child support.
- Defaulted student loans.
- Bad debts.
- Tax levies.
Submit the proper forms
If an employee's wages are to be garnished, the creditor will notify you by sending you a Wage Garnishment package (SF-329). This package includes a letter to the employer (SF-329A), the wage garnishment order (SF-329B), a wage garnishment worksheet (SF-329C) and an employer certification form (SF-329D).
- Complete and return the employer certification form (SF-329D) within 20 days of receipt. If you don't, you may be subject to civil and criminal action.
Calculate withholdings and make payments
Calculating the proper amount to garnish can complicate your payroll accounting process to a large degree. Do it wrong and you could face legal repercussions. Even if you're within the legal limits, you can still draw heat from a creditor for garnishing too little or from your employee for garnishing too much. Payments are generally made each pay period.
- Many try payroll software which offer solutions to calculate garnishment amounts.
In some cases, an employee's wages may be garnished by more than one creditor. For instance, you may be asked to garnish wages for child support and for a defaulted student loan. It's your responsibility to know which types of garnishments take priority.
In some states, the garnishee can be reimbursed for administrative costs associated with processing garnishments.
Termination of garnishment
When your employee's debt has been paid off, the creditor will notify you with a Notice of Termination of Wage Garnishment Order (SF-329E). Once you receive this form, you are to stop deducting withholdings from the employee's paycheck immediately.