Garnish—when it’s parsley, it’s nice. When it’s money, not so much. When you’re a business owner and you receive a writ of garnishment for someone who works for you, you can’t just pick that garnishment off your plate…somebody has to eat it. A wage garnishment is a legally demanded deduction of a person’s earnings for the payment of a debt.
The Garden Gnome Garnish Let’s say you have an employee named Joan. On her own time, Joan accidentally breaks her neighbor’s garden gnome. The neighbor drags Joan to court and wins a judgment against her for the cost of a new garden gnome, plus emotional damages. The neighbor then gets a writ of garnishment for payment of the judgment, and you get a visit from an important-looking person with an important-looking letter.
Congratulations. You’ve been dragged into the middle of the battle between Joan and her neighbor. If you don’t comply with the demands of the letter, in certain situations, you may find yourself liable for the damages.
Your Employee’s Rights First, you can’t fire Joan for being garnished one time. According to Title III of the Consumer Credit Protection Act, “No employer may discharge any employee by reason of the fact that his earnings have been subjected to garnishment for any one indebtedness,” and any employer who “willfully” does so “shall be fined not more than $1,000, or imprisoned not more than one year, or both.”
But if you later get garnishment orders for Joan from the IRS and her grandma and you are tempted to declare open season, check your state’s laws. The federal law does not protect Joan from discharge if her earnings are garnished the second or third time, or anytime after that. The federal law also makes clear, however, that it does not “annul, alter, or affect, or exempt any person from complying with, the laws of any state … prohibiting the discharge of any employee by reason of the fact that his earnings have been subjected to garnishment for more than one indebtedness.”
Another good reason to check your state’s garnishment laws is listed on the U.S. Department of Labor, Wage and Hour Division, Fact Sheet No. 30: “If a state wage garnishment law differs from the [Consumer Credit Protection Act], the law resulting in the smaller garnishment must be observed.”
Joan or any of your other employees can have their wages garnished for a variety of reasons, like court judgments for which writs of garnishment were obtained, student loans, child support, alimony, and unpaid taxes.
How to Handle a Wage Garnishment What will happen first is that Joan’s neighbor, after receiving a judgment against her, will serve her with a demand letter for payment. You will then receive a writ of garnishment and you’ll have to respond to it. Joan will usually have some time to dispute the notice. In any case, it’s always nice to let her know that you received an order to garnish her wages.
If Joan does not respond to the notice within the specified amount of time, or she does but the garnishment sticks, then you have to calculate how much money to withhold from her paycheck in order to send it to the debtor.
For typical garnishments, the federal law limits the amount to 25% of an employee’s “disposable” earnings. It’s either that or a magic formula established by Title III of the Consumer Credit Protection Act. For federal student-loan garnishments, the limit is 15% of an employee’s “disposable” earnings. For child support or alimony garnishments, the federal limit is up to 50% and can be as high as 60%, depending on the circumstances.
The calculation should be written on the court order you received. Then, you keep garnishing your employee’s wages until the debt is paid or until you receive an order to stop the garnishment.
Jon Schmidt is senior vice president of Newtek Business Services, Inc., which offers business and financial services to help eyecare practices increase sales, reduce costs, and minimize business risk through Vision Business Builders. Contact feedback@visioncareventure.com with comments and/or suggestions for future topics.
