What is wage garnishment?
Wage garnishment is a legal procedure that occurs when a court issues an order to an employer to withhold a specific amount of an employee’s paycheck. It is then sent to a creditor or a person to which the employee owes money until the debt is completely paid off. Wage garnishment is usually organized within payroll software. Garnishment allows the plaintiff to take the money or property of the debtor from the person or institution that holds that property.
Examples of common sources of wage garnishment include:
- Child support
- Consumer debts
- Student loans
- Credit garnishments
- Bankruptcy orders
- Alimony
- Unpaid taxes
How does wage garnishment work?
It’s most common for wage garnishments to begin when a creditor, typically a bank or credit card company, sues a debtor for nonpayment of a debt and wins in court. This includes banks that can sue a homeowner after a foreclosure.
If the creditor wins in court, they are awarded a judgment against the customer who owes. A judgment will not be given unless the creditor wins the lawsuit. This judgment makes it possible for them to get a garnishee order, which is then sent to the person’s employer.
Types of wage garnishment
Wage garnishment typically impacts an employee each pay period, which is when their disposable earnings are subject to garnishment by creditors. The two main types of garnishment include:
- Wage garnishment: When employees are legally required to provide creditors a portion of their earnings to pay off debt.
- Nonwage garnishment: Sometimes referred to as a bank levy, this is when a creditor can legally tap into a bank account to acquire funds.
Impact of wage garnishment on businesses
As an employer, wage garnishments need to be handled appropriately and accurately while also remaining compliant. If a court order referring to a wage garnishment is received, an employer is required to withhold a portion of the employee’s wages and forward them to the third-party. These orders are typically issued by government agencies, like the IRS, the U.S. Department of Education, or state tax agencies.
It’s up to the employer to comply with the laws associated with wage garnishments and make sure all orders are processed quickly and correctly. If done incorrectly, employers expose themselves to financial and legal risk. Any mishandling of the wage garnishment can lead to a judgment against the employer for the entire amount of the employee’s debt, a lawsuit from the creditor or the employee, as well as other costs or penalties that a business may not have the budget for.
This can especially impact a business if it requires employees to travel internationally or if it employs drivers. It’s recommended for businesses across varying industries to use electronic funds transfer (EFT) to not only save time, but increase efficiency, streamline the process, and reduce costs.
In addition, under CCPA provisions, it is unlawful for an employer to discipline or terminate an employee whose wages are being garnished for a solitary debt.
Mara Calvello
Mara Calvello is a Content and Communications Manager at G2. She received her Bachelor of Arts degree from Elmhurst College (now Elmhurst University). Mara writes customer marketing content, while also focusing on social media and communications for G2. She previously wrote content to support our G2 Tea newsletter, as well as categories on artificial intelligence, natural language understanding (NLU), AI code generation, synthetic data, and more. In her spare time, she's out exploring with her rescue dog Zeke or enjoying a good book.
