Wage garnishment is an American legal order, for an employer to withhold a part of employee’s wages to pay his debts (Ulastd, 2008). Creditors can take garnished amount directly from employee’s paycheck but without filling and winning a lawsuit no one can garnish an employee’s wage. According to the wage garnishment federal limits and Credit consumer protection act, creditors cannot garnish more than 60% of employee’s wages. The wage garnishment law applies to all US territories and all 50 states of Columbia. Every employee of these countries who is receiving earnings is liable to pay wage garnishment. Four states in US, that prohibit wage garnishment law, are North Carolina, Pennsylvania, South Carolina, and Texas. Different law agencies like IRS, state law etc. can issue wage garnishment order due to unpaid taxes.
There is a difference between wage garnishment and bank levy. Wage garnishment happens when employer receives an order from the court to withhold some amount of money from the employee’s compensation on the other hand bank levy happens when creditor takes amount directly from the employee’s bank. In this article we will discuss about the restrictions on wage garnishment and employer’s responsibilities in garnishment.
Types of income that can be garnished
As per the federal law of wage garnishment, only disposable earnings, which is the amount an employee receives after the required deduction by law (federal, state and local taxes), are considered for the garnishment. Wages, commissions and bonuses are the most common type of garnishment. For consumer debts; up to 25% wage can be garnished and for child support and federal income tax debt up to 50% to 60% amount can be garnished.
The law also states that, supplemental security income, unemployment benefits, worker compensation income, and state public instance are not subject to garnishment. Pension and retirement plans can be garnished when debt is overdue. Veteran’s administration income and spousal support received could be garnished for child support and federal income tax.
Restrictions on wage garnishment
According to the law maximum amount that can be garnished in any work week or pay period like biweekly or monthly etc. can be 25% of the disposable earning. This can also be the amount by which the disposable income exceeds 30 times the federal minimum wage for a week. This is known as ordinary garnishment.
- If disposable earning is $217.50 for weekly pay period then there can be no garnishment.
- If disposable earning is more than $217.50 for weekly but less than $290.00 then amounts above $217.50 can be garnished.
- If disposable income is more than $290.00 for weekly then maximum of $25% can be garnished.
If any employee receiving pay on biweekly basis than their disposable income will be multiplied by 2 for garnishment, for example; disposable income should be more than $580 ($290 *2) for this pay period (Wage Garnishment, 2011).
Process of garnishment
Garnishment process starts with the “writ of garnishment”. Garnishment order is sent to the employer when an employee is subject to garnishment. Writ of garnishment has two forms; statuary response form and garnishment calculation worksheet. Statuary response form is required to return to the court within 7 days of receiving the writ of garnishment by the employer (Ulastd, 2008). Garnishment calculation worksheet is used by the employer to determine the amount that should be garnished. A copy of garnishment order is also sent to the employee and the employee will have a limited number of days to contest it. When an employee challenges the order, the employer should stop sending money to the creditor and send it to the court or the government agency that issued the garnishment. The Government will withhold this money until the dispute is resolved (Ulastd, 2008).
Employer’s responsibilities in garnishment
The employer receives a notice from the court or a government agency for wage garnishment and they cannot refuse to garnish the payment. The employer should calculate the amount accurately, which is to be deducted from the employee’s wage until the garnishment expires. If the garnishment order is sent to a wrong employer then the employer should return statuary response form, indicating the mistake. When an employer receives the notice of termination of wage garnishment then the employer should stop withholding the garnishment (Federal Wage Garnishment Law, 2009).
Negative impact of wage garnishment
Wage garnishment orders, by court, have negative impact on employee’s credit rating because they remain on the employee’s credit report for 7 years. However; if an employee voluntarily pays his debts then it will not negatively affect an employee’s credit rating (Wage Garnishment, 2011).
Challenging the order of garnishment
According to the federal wage garnishment law, employees can challenge the order of garnishment with the help of necessities of life. They should prove that they need money for their basic needs like food, shelter, cloth, and medical bills. But it has two conditions that applies:
- The application should be employee’s first attempt.
- If it is a second attempt then the employee should prove that there has been a negative change in his financial condition since the last hearing. The employee can also file for bankruptcy in this case.
- The Federal Wage Garnishment Law, Consumer Credit Protection Act’s Title 3 (CCPA). (2009). U.S. Department of Labor Wage and Hour Division. Retrieved May 16, 2014, from http://www.dol.gov/whd/regs/compliance/whdfs30.pdf.
- WAGE GARNISHMENT. (2011). Public Counsel. Retrieved May 16, 2014, from http://www.publiccounsel.org/tools/publications/files/2011-Wage-Garnishment-Packet.pdf.
- Anon, 2012. WAGE GARNISHMENT, Available at: http://www.saclaw.org/Uploads/files/Step-by-Step/wage-garnishment.pdf [Accessed June 16, 2014].
- Ulatsd, T., 2008. Wage Garnishment. , p.1 to 16. Available at: http://mail.oslsa.org/home/[email protected]/Marietta Repository/Wage Garnishment.pdf [Accessed June 16, 2014].