Understanding Wage Garnishments: A Guide for Business Owners
As a business owner, especially one trying to manage payroll in-house, you're likely to encounter various finance and payroll-related processes along the way. One of these processes might be wage garnishments, or court-ordered deductions from an employee's wages, typically to satisfy a debt or legal obligation.
Not familiar with garnishments and how they work? Here is a quick break down.
What Is a Garnishment?
A garnishment is a legal process that allows a creditor to collect a debt by taking a portion of an employee's wages directly from their paycheck. This process is typically initiated through a court order or a government agency, such as the Internal Revenue Service (IRS) or state tax authorities. Garnishments can be used to collect various types of debts, including child support, alimony, unpaid taxes, student loans, and consumer debts.
Types of Garnishments
Wage Garnishments: These are the most common type of garnishments and are used to collect various debts, as mentioned earlier. The amount that can be garnished depends on federal and state laws, which may limit the percentage of disposable income that can be taken.
Child Support and Alimony Garnishments: These are used to ensure that parents meet their financial obligations towards their children or former spouses. Child support and alimony garnishments are typically prioritized by courts.
Tax Levies: The IRS or state tax authorities can issue wage garnishments to collect unpaid taxes. The amount withheld is determined by the taxpayer's income and the tax debt.
Creditor Garnishments: If an individual owes money to a creditor and fails to pay, the creditor can seek a court order for wage garnishment to recover the debt.
How Garnishments Impact Businesses
As a business owner, you play a crucial role in the garnishment process. Here's what you need to know:
Legal Obligation: When you receive a court order or notice of garnishment, you are legally obligated to comply with it. Failing to do so can result in penalties and legal consequences.
Employee Notification: Once you receive a garnishment order, you must notify the affected employee(s) promptly. They have the right to know that a portion of their wages will be deducted to satisfy a debt or legal obligation.
Withholding and Remittance: It's your responsibility to withhold the specified amount from the employee's paycheck and remit it to the appropriate authority or creditor as directed by the garnishment order.
Employee Protections: Federal and state laws provide certain protections for employees facing garnishments, such as limits on the amount that can be garnished and the prohibition of retaliatory actions against employees.
Record-Keeping: Maintain accurate records of garnishments, including copies of the garnishment orders, payment receipts, and the amounts withheld from employee wages.
Conclusion Garnishments can be complex and pose legal and financial responsibilities for business owners. Understanding the types of garnishments, complying with legal obligations, and treating employees with fairness and respect throughout the process are essential aspects of managing garnishments effectively.
If your business needs help navigating garnishments, along with other human resources and compliance-related challenges, it's advisable to consult with a professional. SynchronyHR's human resources experts are here to help! Reach out today to schedule a free consultation.
* This article is for informational purposes only, and is not intended as legal advice or guidance. For further information, please consult a legal professional.