During tax season, some people may be excited by the prospect of receiving refund checks from the IRS or their state’s respective Department of Revenue. For some, those expected payouts may never materialize if there are orders allowing that money to be surrendered to repay things like back taxes, owed child support, or to satisfy other debts. When individuals owe money, there are means by which a creditor can also seek to garnish wages until the debt is satisfied. In such cases, employers may be drawn into this financial foray. Here are some things employers should know about garnishments.
What is a garnishment?
Generally, a garnishment is an order requiring an employer to withhold a sum of money from the employee’s pay. Depending on the type of garnishment, the withheld wages may be directed to the body that issued the order, a third-party entity, or the creditor themselves. The garnishment continues to require those wages to be withheld until such time as there is an order revoking the garnishment or the debt has been satisfied in its entirety.
What laws govern wage garnishments?
Massachusetts General Laws Ch. 246 §28 governs the garnishment of wages and pensions. Under that statute, the amount recoverable by the creditor per pay period is limited to 15% of gross wages OR the amount of disposable income remaining after the deduction of 50 times the Massachusetts’ minimum wage, whichever calculation is less. The federal Consumer Credit Protection Act similarly provides a withholding limit of the lessor of 25% of disposable wages OR the amount remaining when you subtract 30 times the federal minimum wage from the amount of disposable wages. Calculations for the amounts recoverable for specific situations – child support, federal student loans, and taxes maintain different limits to recovery in a pay period pursuant to state and federal laws.
Wages include salaries, commissions, bonuses and some payments issued by a pension or retirement plan, but disposable income is the amount of income remaining after deductions mandated by law such as taxes.
How does a garnishment come to be?
The process for obtaining a garnishment is dependent on the type of underlying debt asserted. In common cases such as debts incurred because of defaulted credit card payments or a loan, the creditor files litigation. If a judgment is entered against the employee, the credit card holder/plaintiff in the litigation can then follow procedures to request a garnishment of wages to satisfy such judgment. Garnishments for child support, federal student loans, or taxes follow a more administrative path which does not necessitate a separate court order and are issued at the time the amount is set or are initiated by the agency overseeing the debt.
What responsibilities do employers have?
First, employers must act timely upon receipt of an order for garnishment. They must review their records to verify the employment of the debtor, perform the necessary calculations to determine the amount to be withheld, and then provide an adequate response to the body issuing the garnishment within the time frame ordered.
Second, employers must keep detailed records. In most cases, the employer will need to start withholding wages from the first paycheck after the garnishment is received. Sometimes that money remains held with the employer until a further order is issued, and other times it is immediately released to the designated recipient. The employer should maintain records of the calculations of the amount to be withheld, any monies withheld (date, pay period, amount), to whom funds were dispersed, and a running calculation of the amounts withheld.
Third, employers should be aware that federal law protects employees from being fired if they receive one garnishment.
Lastly, if a garnishment is received and an employer is unsure of what type of response is needed, how to perform the calculations, or they would like to discuss concerns regarding an employee with more than one garnishment, then the employer should consult employment counsel.