July 24, 2023

Wage Garnishment: A Small Business Guide to Understanding Wage Garnishments

What is a wage garnishment in payroll?

In today’s economic landscape, it’s crucial to understand the concept of wage garnishments and how they can impact individuals and businesses alike. Wage garnishment is a legal process that allows a creditor to collect a debt owed by an individual or entity directly from their wages. Here we will try to demystify wage garnishments for small businesses.

What types of garnishments are there?

A writ of garnishment is a court order that instructs an employer to withhold a portion of an individual’s paycheck to satisfy a debt. This legal tool is used by creditors who have exhausted other means of collecting a debt, such as attempting to establish a payment plan or seizing assets. Writs of garnishment can apply to various types of debt, including unpaid taxes, child support, defaulted student loans, and outstanding judgments.

How do you calculate a garnishment amount?

The process of wage garnishment begins when a creditor files a lawsuit against the debtor and successfully obtains a judgment. Once the judgment is issued, the creditor can request a writ of garnishment from the court. The writ is then served to the individual’s employer or payroll department, directing them to withhold a specific percentage of the employee’s wages. This percentage varies depending on state laws and the type of debt being enforced but can range from 10% to 25% of the individual’s disposable income.

Is there a way around a wage garnishment?

The short answer is no. Upon receiving a court order to withhold a certain percentage of an employee’s paycheck to collect debts, the employer must begin deducting. Employers are legally obligated to comply with any garnishment order to avoid potential penalties. If a mistake is made in the process, employers can be held financially liable for the entire amount of the debt. They must deduct the specified amount from the employee’s paycheck and send it directly to the creditor until the debt is satisfied or the court orders otherwise. It’s important to note that it is illegal for employers to terminate employees based on a wage garnishment. However, an employee may still face consequences such as damage to their credit report and reputation.

From an employer’s perspective wage garnishments may seem straight-forward, but simple mistakes can be costly for a business. Using payroll software or a third-party payroll provider can calculate and deduct a wage garnishment automatically, ensuring accurate and timely payments to creditors. These systems can also generate detailed reports, facilitating compliance and documentation for legal purposes. Additionally, they can help protect employees’ privacy by securely handling sensitive information related to wage garnishments. If considering a switch to a payroll software or third-party provider is on your horizon, being able to accurately handle wage garnishment is paramount.

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Disclaimer: The information provided on this blog page is for general informational purposes only and should not be considered as legal advice. It is advisable to seek professional legal counsel before taking any action based on the content of this page. We do not guarantee the accuracy or completeness of the information provided, and we will not be liable for any losses or damages arising from its use. Any reliance on the information provided is solely at your own risk. Consult a qualified attorney for personalized legal advice.

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