Understanding wage garnishment in payroll is vital to processing your employee’s paycheck. To ensure compliance with federal and state requirements, you must follow any garnishment orders issued by a court or government body.
Garnishments are different from a levy. A levy is when the IRS or courts seize your bank account, financial accounts, and personal property for debts you owe.
How to process garnishments
Creditors that want to garnish an employee’s wages in payroll must go through the court system. When they do, they’ll send documentation to the employer directing them to set aside a portion of an employee’s paycheck each pay period and send it to them until the debt is paid in full.
Regarding processing garnishment in payroll, each state has laws dictating what employers must do to stay compliant. These laws often vary depending on the type of garnishment, with some states requiring employers to notify employees before taking action.
Generally, a garnishment can take up to 25% of an employee’s disposable income. It includes their hourly wage, salary, commissions, bonuses, and other earnings. In addition, a garnishment can affect earnings from retirement or investment accounts.
The amount an employee owes is determined by subtracting all other garnishments and deductions from the employee’s gross pay, which is their earnings before any deductions are taken. You can then multiply the percent listed on the garnishment notice by the employee’s gross pay to calculate how much of their pay you must withhold each pay period.
Remember that federal law prohibits creditors from garnishing an employee’s wages below the minimum wage. Additionally, an employee may be able to object to the garnishment in payroll in court or negotiate with the creditor to have it stopped.
What happens if an employee stops working for you
Because the requirements vary based on the type of debt and the jurisdiction, a proper answer must be provided. But generally speaking, it’s an employer’s responsibility to process the wage garnishment payroll and withhold the money according to the court order. Employers must also keep records of this activity and, as with any payroll-related information, to make sure that it is sent to the correct agency or creditor.
If an employee has multiple garnishments, the process can become complicated. It’s also important to remember that federal law limits the amount of an individual’s disposable earnings to 25% of that person’s total weekly earnings or 30 times the minimum wage. In addition, some states exempt a more significant percentage of an individual’s wages or prohibit garnishment altogether for certain types of debt, so employers should consult with legal counsel when attempting to understand state garnishment rules.
In the case of debts owed to creditors, the process may start once the employer receives an official garnishment letter from the creditor or government agency. This document, along with the court’s order, should indicate how much of an individual’s paycheck is subject to garnishment. Also the other details such as whether or not tips are considered disposable income and which tax agencies are responsible for the collection of the debt.
How to stop garnishments with the IRS
Once the court issues a garnishment order, you must notify your employee of the amount withheld from their paychecks and its duration. You can do this via letter, including the garnishment details and the employee’s rights. You should also give them a contact phone number or email address for the creditor handling the collection process.
Although one can stop the garnishment by negotiation with the creditor, but you should know that it will continue until both parties come to an agreement Debtors may also be able to file for bankruptcy, which will immediately halt wage garnishments and allow them to protect personal property like clothes and vehicles, depending on state law.
It is important to note that wage garnishments do not include voluntary wage assignments, such as contributions to medical insurance or pre-tax benefits, which the employer makes on behalf of an employee. In addition, the court allows wage garnishments when an employee owes money to a creditor or debt collector.
The IRS will stop a garnishment once the taxpayer pays the tax debt that the employee owes. However, this is only sometimes an option for people who owe too much back taxes. If you cannot pay your back taxes, request a hearing with the IRS and enter into a payment plan to reduce your debt.
How to handle multiple garnishments
Wage garnishment in payroll is something that only some small businesses deal with often, but it’s essential to have a solution to ensure your company is compliant. In addition, you must follow some specific rules and calculations, so it’s necessary to have the right software to handle these situations.
Often, an employee will have more than one garnishment in effect at once. For example, it could be because they owe money to multiple creditors or because the various creditors have different deadlines for paying the debts. In this case, you’ll want to ensure that you’re processing all of the garnishments correctly and doing it in the correct order.
Calculate your employee’s gross pay (their wages, commissions, bonuses, advances, and draws) before making any deductions. It will give you the amount that you need to withhold from their earnings. Then, multiply the percentage listed on the garnishment order by the gross pay to determine the amount of funds to withhold from each paycheck.