How to Handle Employee Garnishments in Payroll?

Posted In | Human Resources | HRMS | Payroll

Employee wage garnishments are court-ordered deductions from an employee's paycheck for the purpose of repaying a debt. Common reasons for garnishments include unpaid taxes, child support, student loans, or other debts. Handling employee garnishments in payroll can be complex, but it's essential to ensure compliance with the law and avoid potential penalties. In this article, we will discuss the steps to handle employee garnishments in payroll effectively.

 

1. Understand the Types of Garnishments

It's crucial to understand the different types of wage garnishments, as each has specific requirements and limits. Common types of garnishments include:
 

• Federal tax levies
   

• Child support orders
   

• Student loan garnishments
   

• Creditor garnishments
   

Each type of garnishment has different rules regarding the amount that can be withheld from an employee's paycheck, as well as the order of priority if multiple garnishments are in place.

 

2. Verify the Garnishment Order

When you receive a garnishment order, it's essential to verify its authenticity by checking the issuing agency, case number, and employee information. If you have any doubts about the legitimacy of the order, contact the issuing agency for clarification.

 

3. Notify the Employee

Once you have verified the garnishment order, promptly notify the affected employee in writing. Inform them of the garnishment order, the reason for the garnishment, the amount to be withheld, and the duration of the withholding. It's important to maintain open communication with the employee throughout the garnishment process.

 

4. Calculate the Withholding Amount

To determine the appropriate withholding amount, review the garnishment order and any applicable state or federal guidelines. Garnishment limits often depend on factors such as the employee's disposable income, the type of debt, and the state in which the employee resides. Be sure to calculate the withholding amount accurately to avoid over- or under-withholding.

 

5. Prioritize Garnishments

If an employee has multiple garnishments, you must prioritize them according to federal and state laws. Generally, federal tax levies have the highest priority, followed by child support orders, student loan garnishments, and then creditor garnishments. However, be sure to review your state's specific guidelines to determine the correct order of priority.

 

6. Process the Garnishment in Payroll

Once you have calculated the withholding amount and prioritized the garnishments, process the garnishment deduction in your payroll system. Be sure to track the total amount withheld and remitted to the issuing agency, as well as any fees you may be allowed to charge the employee for processing the garnishment.

 

7. Remit the Garnished Funds

Remit the garnished funds to the appropriate agency as directed in the garnishment order. Be sure to follow the specified remittance schedule and maintain accurate records of all payments.

 

8. Monitor the Garnishment

Regularly monitor the garnishment to ensure ongoing compliance. If the employee's income or employment status changes, you may need to adjust the withholding amount. Additionally, stay informed of any changes to garnishment laws or regulations that may impact the garnishment process.

 

9. Terminate the Garnishment

Once the employee's debt has been satisfied or the garnishment order has expired, promptly terminate the garnishment in your payroll system. Notify the employee that the garnishment has been terminated and update their payroll records accordingly.

 

Handling employee garnishments in payroll can be a complex and time-consuming process, but it's essential to ensure compliance with the law and maintain a positive relationship with your employees. By understanding the types of garnishments, verifying orders, communicating with employees, calculating withholding amounts, prioritizing garnishments, processing garnishments in payroll, remitting funds, monitoring the garnishment, and terminating the garnishment when necessary, businesses can effectively manage wage garnishments and minimize their impact on both the employer and the employee.