What are Wage Garnishments, and How Do They Work?

Unlike a garnish in the culinary world, a wage garnishment is not something pleasing to the eye. In fact, it will always mean that your employee will be taking home less of their hard-earned wages, and it means that you, their employer, have to make sure it gets taken from them.

A wage garnishment is a court-ordered deduction that must be paid to a third party.  

Types of Wage Garnishments

There are several types of wage garnishments, including:

• Federal Tax Levies
• Child Support Orders
• Federal Student Loans
• State Tax Levies
• Bankruptcy Orders
• General Garnishments (typically from a private debt holder who has obtained a court-ordered collection)

Each type has its own limits on the percentage of wages that can be withheld, making the process somewhat complex for employers. However, when you receive a court-ordered garnishment, the first two questions you need to answer are:

1. How much do I need to withhold from my employee’s paycheck?
2. Where do the withheld funds need to be sent?

Let’s walk through these questions and how to answer them.

How to Calculate the Amount of a Wage Garnishment

When you receive a wage garnishment letter, the court order will specify the exact amount to withhold from each paycheck. However, there are legal limits on how much can be garnished based on the employee’s earnings. These limits ensure that employees still have some take-home pay.

In rare cases, such as tax levies and some bankruptcy orders, those limitations do not apply, meaning the court order can reduce an employee’s paycheck to zero. However, for most garnishment types, it’s essential to be aware of the legal limits to ensure the correct amount is withheld.

A key part of understanding garnishment limits is the concept of disposable income.

For many, the term “disposable income” brings to mind vacations and fine dining. However, in the context of wage garnishments, it means something entirely different. An employee’s disposable income is their gross wages minus all mandatory withholdings, such as:

• Federal and state taxes
• Social Security and Medicare
• Other garnishments with higher priority

Essentially, disposable income is what an employee’s net pay would be if there were no additional garnishments. Voluntary deductions, such as 401(k) contributions or elected medical insurance, should not be subtracted when calculating disposable income. Additionally, tips do not count as disposable income since they cannot be garnished.

Simply put, disposable income determines the garnishment limitations.

• General garnishments: The minimum take-home pay must be at least $217.50 per week, and the garnished amount cannot exceed 25% of disposable income.
• Child support orders: The limitation ranges from 50% to 65% of disposable income, depending on state laws, the number of children being supported, and whether past-due child support is owed. Each child support order specifies the exact percentage, so be sure to read the paperwork carefully.

Garnishment Priorities: What Happens When There Are Multiple Orders?

You may have noticed that different types of garnishments have different levels of priority. If an employee has multiple wage garnishments, deductions must be made in a specific order until the minimum take-home pay is reached.

The priority order is as follows:

1. Federal tax levies and child support orders (whichever is received first takes precedence)
2. Federal student loans
3. State tax levies
4. General garnishments

If multiple general garnishments exist, 25% of disposable income (or whatever remains above the minimum take-home pay) is paid to one debt agency at a time, in the order received, until each debt is fully repaid. Once one garnishment is paid off, the next in line begins.

Making Wage Garnishment Payments

Once you’ve calculated the correct deduction, making the payment is straightforward. Each garnishment order will include an address where payments should be sent. After deducting the appropriate amount from the employee’s paycheck, you can write or print a check for the garnished amount.

One crucial detail to include with every payment is the Remittance ID, found in the garnishment order. This identifier ensures the agency applies the payment to the correct garnishment. Be sure to write the Remittance ID directly on the check.

Some states allow employers to deduct a small administrative fee for the time and effort involved in processing garnishments. The state provides a maximum amount to take; it is completely up to the employer’s discretion how much to take under that. Enough to cover postage, perhaps?  

A Simpler Solution: Outsourcing Wage Garnishments to a Payroll Company

Finally, allow me to garnish this article with a time-saving solution: outsourcing.

If you work with a payroll provider, they can handle wage garnishments for you. It’s as simple as forwarding the court order to your provider and they will handle the rest.  

Running a business takes a lot of time and energy. The last thing you want to do is stress about whether or not you calculated the correct wage garnishment amount from your employees. At Whirks, we aim to educate business leaders and simplify their processes. Check out our article on the 3 Common Payroll Mistakes Small Business Owners Make.