What Every Employer Needs to Know about Garnishment

This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.

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You receive an official-looking letter in the mail instructing you to pay a portion of an employee’s wages to a court. What is the letter and what do you do? Make sure to understand what’s going on so you can avoid any legal problems.

What is Garnishment?

This is a legal procedure instructing an employer to withhold some of an employee’s wages and other earnings and then pay them to another party, usually a court. Garnishment results when a person fails to meet legal obligations and must satisfy outstanding amounts a little at a time through withholding from wages. These legal obligations include:

• Child support (including back payments);
• Certain bankruptcy proceedings;
• Debts (usually unpaid medical and legal bills);
• Federal or state income taxes;
• Student loan default.
• The instructions to the employer may come in the form of a letter, a notice, or a writ.

What an Employer Must Do

You must comply with a garnishment notice and withhold the stated amount from an employee’s earnings. You may be instructed to withhold a fixed dollar amount or a percentage of earnings. Earnings for this purpose include wages, salaries, commissions, bonuses, and periodic payments from a pension or retirement program, but usually not tips.

You don’t have to do anything else. There are no posters to display; no special recordkeeping is required. You do not have to include garnishments in an employee’s Form W-2 for the year. However, some employers choose to do so in box 14 (“other”) of Form W-2.

What an Employer Should Do

Usually, an employee knows that garnishment is about to happen. He or she has been informed by the court, the IRS, or other official party about the process. However, it is still a good idea to send a formal memo to the employee advising the employee that you have received a notice of garnishment and that garnishment will begin. Include in the memo the party requesting the garnishment (e.g., the court) and the amount that will be withheld each pay period from the employee’s wages. Also say in the memo that garnishment will continue until you are officially informed that the debt has been paid and garnishment is no longer required.

You may be able to charge the employee a fee to cover your administrative costs for handling the garnishment. The limits are fixed by state law (the limits here apply only with respect to garnishment for child support). For other garnishments, check with your state labor department.

What an Employer May Not Do

You cannot ignore a garnishment notice. If you do, you can be liable for any amount that should have been withheld from an employee’s earnings.

You cannot fire an employee because of garnishment if it is only for a single debt. However, firing is not barred if an employee becomes subject to garnishment for a second or subsequent debts. Employers who willfully violate this discharge rule and lay off the worker may be prosecuted criminally and fined up to $1,000, or imprisoned for not more than one year, or both.

Similarly, you cannot refuse to hire someone or subject an employee to disciplinary action merely because he or she has garnishment hanging overhead.

If you have any concerns, be sure to talk with a lawyer before taking action.