An earnings withholding order is a court-issued document requiring employers to withhold and remit money from an employee’s paycheck to pay a creditor for an unpaid debt. Some examples of this debt are past due student loans and delinquent tax bills. To avoid liability, employers should immediately and only withhold what’s required in the order.
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How Earnings Withholding Orders Work
Earnings withholding orders are essentially wage garnishment orders. When creditors deem accounts uncollectible, they have the right to sue the person at fault to collect the funds owed. Once the creditors have submitted enough documentation to the court confirming the debt is real, a judge will issue a garnishment order to the person’s employer with details on how much money to withhold, how long to withhold it, where to send the funds, and so on.
Federal laws, along with state regulations, regulate the wage garnishment process. Generally, you’re not allowed to deduct more than 25% of an employee’s income for nonchild or spousal related garnishment orders―child support orders typically max out at 50% to 65% of an employee’s income and are issued via “income withholding orders.” The garnishment notice usually comes with a set of instructions so that you know how to use the information on the document.
Common Information You’ll Find on Earnings Withholding Orders
All earnings withholding orders are not formatted the same; the form you receive depends on the state you’re in. Regardless, most garnishment orders include similar information.
You should expect to find the following on an earnings withholding order:
- Plaintiff information: The plaintiff is the creditor who is garnishing the employee’s check for a delinquent debt. The garnishment order will list a name, regardless of whether it’s an individual, company, or a government agency (for past-due taxes).
- Defendant & debtor information: The defendant is the debtor or person who failed to pay the debt. The debtor’s name, address, and Social Security number should be listed to help you verify that they are your employee.
- State & court information: The state and/or county in which the garnishment order is issued. Most orders, except for those pertaining to government agencies―student loans and taxes―are implemented through the court.
- Debt amount: The debt amount is the total money that the creditor intends to collect. Usually, once a creditor decides to sue, they will sue for the full amount owed.
- Withholding details: There will be information to help you calculate the amount you should withhold, such as 25% of the employee’s earnings.
All garnishment orders look differently depending upon the state in which they originated but should always contain enough information to help you validate who the debtor and creditor are. It should also be clear that you are the designated recipient of the document. In most states, earnings withholding orders contain at least a brief set of instructions so that you know how to process them.
Processing an Earnings Withholding Order
To process an earnings withholding order, you must first receive it. Usually, it comes as certified mail but, in some states like California, the sheriff or marshal physically delivers the garnishment order to the employer’s address.
The court or entity that issued the order typically requires a written answer within a specified period, which can be as short as five days, so it’s essential to act quickly. You’ll need to verify that the debtor is currently on your payroll before agreeing to comply with the terms of the withholding order. Also, you’ll most likely need to share how much money the employee earns, whether or not the worker has other garnishments, and so forth.
If the garnishment notice doesn’t state a flat amount to withhold, as is frequently the case, you’ll need to calculate per the guidelines provided. Typically, this means you’ll need to apply a certain percentage to a portion of the employee’s income.
It’s vital to start withholding the employee’s funds on their next paycheck following the receipt of the garnishment order. You’ll send the payments according to the instructions on the document. Be mindful of sending it to the correct creditor and address in addition to paying the exact amount as often as required. Double-check the writ of garnishment―another term for garnishment order―to ensure you’re using the right information.
Types of Garnishments From Income Withholding Orders
Creditors issue garnishment orders for numerous reasons. The longer the employee has neglected to pay the debt, the more likely they will be subject to a paycheck garnishment, especially if it’s for a debt issued by a government agency like for student loans. Some debts, like for back child and spousal support, can be garnished from a paycheck but can be subject to different rules and are processed under a different type of order, known as an income withholding order.
Here are the most common types of debts that may be requested via a garnishment order:
- Tax levies: Unpaid federal, state, and/or local taxes are all subject to garnishment collection if your employee fails to pay them on time. Governmental agencies can issue the legal order without going through the court.
- Student loans in default: Defaulted student loans are past due; this doesn’t include loans in forbearance or deferment.
- General creditors: This can include medical debt, old credit card bills, and so forth.
- Financial support orders: Financial support orders include child and spousal support. These are a high priority on the list of garnishments and take precedence over other debts.
You can receive an earnings withholding order for any tax, student loan, or other debt accumulated by your employee if they go unpaid. Financial support obligations for children or spouses, however, are a little different. You’ll receive an income withholding order vs an earnings withholding order, although they’re both designed to fulfill a similar purpose, which is to instruct employers to withhold funds from an employee’s paycheck to cover the debt owed.
Income Withholding Orders vs Earnings Withholding Orders
Sometimes, people use the terms “income withholding order” and “earnings withholding order” interchangeably, but there are differences. An earnings withholding order, which is the same as a wage garnishment order, is used to collect on many types of debt, with the exception of debt for financial support. Income withholding orders are issued by state agencies to help parents or spouses collect on financial support that is owed to them and can be issued even when an employee isn’t behind.
“An earnings withholding order is a legal document issued by the court that instructs an employer to withhold a portion of an employee’s (debtor’s) earnings and forward the monies to a levying officer, who will then send it to the creditor.
“However, an income withholding order is a legal document issued by a court that instructs the employer to deduct a certain percentage of the employee’s (errant parent’s) income every month, and forward this amount to a state agency as payment for child and medical support.”
―Joe Bailey, Business Development Consultant, My Trading Skills
To sum it up, Bailey said, “An earnings withholding order is issued against an employee by a creditor, while an income withholding order is issued against an employee by a former spouse or co-parent.” Pay close attention to any documents you receive that require you to garnish an employee’s wages. You’re allowed to withhold more than two times as much money for income withholding orders than you are for earnings withholding orders. This is because the court prioritizes the livelihood of children and other dependents over the finances of a traditional creditor.
If you get confused about how to process garnishment order, consider using Zenefits for compliance. It offers payroll services but also integrates with third-party payroll apps for employers who are already using payroll software.
Maximum Garnishment Amounts for Earnings Withholding Orders
There are federal and state laws that govern how much money you can legally withhold to comply with a garnishment order. It depends on how much money you’re paying the employee in total and if the debt is for financial support vs an alternate category. If their disposable income―money left over after required payments like taxes are deducted―is too low, such as less than $217.50 weekly―you won’t be able to garnish any of their paycheck per a garnishment notice.
“State laws on earnings withholding vary but, generally, the amount eligible for garnishment depends on the employee’s disposable income. Disposable income is the salary that remains after deducting federal and state income taxes, Social Security tax and state disability tax. Deductions for health benefits, retirement savings and court-ordered spousal or child support is not subtracted before determining disposable income.”
―Justin Carpenter, Accounting Manager, Gurian CPA, PLLC
Carpenter went on to say,
“Sometimes, the government garnishes an income earner’s wages for payment of back taxes or delinquent child support. It uses disposable income as a starting point to determine how much to seize from the earner’s paycheck. As of 2016, the amount garnished may not exceed 25% of a person’s disposable income or the amount by which a person’s weekly income exceeds 30 times the federal minimum wage―currently $7.25 an hour―whichever is less.“
Here’s a breakdown of the garnishment amounts you can process for each disposable income level:
Maximum Garnishment Amounts of Employee’s Disposable Income
$217.50 or less:
$435.00 or less:
$471.25 or less:
$942.50 or less:
More than $217.50 but less than $290.00:
Amount ABOVE $217.50
More than $435.00 but less than $580.00:
Amount ABOVE $435.00
More than $471.25 but less than $628.33:
Amount ABOVE $471.25
More than $942.50 but less than $1,256.66:
Amount ABOVE $942.50
$290.00 or more:
$580.00 or more:
$628.33 or more:
$1,256.66 or more:
Source: United States Department of Labor
* These limitations do not apply to certain bankruptcy court orders or to garnishments to recover debts due for state or federal taxes. Different limitations apply to garnishments pursuant to court orders for child support or alimony.
These limitations help to ensure that employees still have money left over to support themselves. Workers earning below-poverty wages especially benefit from these limits. If someone is earning less than $218 a week, they’re most likely struggling already, and being forced to pay an old debt could be detrimental to their livelihood.
Examples of Paycheck Amounts Subject to Garnishment
Calculating garnishment amounts for employees who earn well above minimum wage is much easier than calculating for those who don’t. You can usually apply a percentage to their paycheck to determine how much money to withhold. For low-income employees, however, calculations require a little more thought.
Here are a couple of examples―be sure to use the Maximum Garnishment Amounts chart above―to help you determine the amounts subject to garnishment, based on the current $7.25 per hour federal minimum wage:
- An employee’s gross earnings in a particular week are $265. After required payroll deductions (taxes), the disposable earnings are $225. This week, $7.50 may be garnished, because only the amount higher than $217.50 may be garnished when disposable income is less than $290.
- An employee who is paid biweekly has a disposable income of $600 for the first week and $60 for the second week of the pay period, totaling $660 for the pay cycle. In a biweekly pay period, when an employee’s disposable income is at or higher than $580 for the pay cycle, you can garnish up to 25% of their earnings. It doesn’t matter that the income in the second week is less than $217.50.
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Other Garnishment Withholding Limits
There are alternative limits placed on other types of garnishments, like child support, student loans, and taxes. You can deduct much more than 25% of an employee’s income if they need to pay for child or spousal support.
Here are some additional garnishment withholding limits:
- Creditors can garnish an employee’s wages for up to 50% of their disposable earnings if they’re currently supporting a spouse or dependent. If the worker isn’t supporting anyone, you may be required to withhold up to 60% of their earnings. If the employee is behind more than 12 months in payments, you can withhold 65%.
- If your employee’s student loans are in default, you may withhold up to 10% of their disposable earnings.
- Other federal agencies―aside from the U.S. Department of Education―or collection companies under contract with the agencies can require you withhold up to 15% of an employee’s disposable income for non-tax debts.
It’s important to be careful when calculating employee garnishment amounts. Different types of paycheck garnishments warrant different withholding amounts. Any other obligations an employee has could also affect how much money you can withhold. For instance, child support payments have to be deducted from disposable income when calculating garnishment amounts for nonfinancial support-related payments.
Laws for Employers Processing Garnishments
Besides the limits placed on withholding amounts, the law also protects employees from being discriminated against or mistreated due to the judgments―court order giving creditors the power to collect on unpaid debts―brought against them. If you ever terminate an employee whose paycheck is being garnished, be sure to document the reasons why as you legally cannot terminate an employee for having a single garnishment order against them.
If you receive multiple earnings withholding orders for a single employee, you may be able to fire them legally, depending on the state’s laws. Federal law doesn’t protect employees who receive more than one earnings withholding order from being terminated. However, some state laws do, such as Florida. In Florida, you aren’t legally allowed to terminate employees’ employment for any garnishment-related reasons. Failure to comply can result in more than thousands of dollars in fines, penalties, and back pay. In extreme cases, you can be sentenced to serve jail time.
Penalties for Not Complying With Earnings Withholding Orders
If you fail to respond to a notice of garnishment within the required time, the court may hold you liable for your employee’s debt. This can also happen if you fail to submit payments promptly or pay the wrong amount.
The Society of Human Resource Management (SHRM) mentioned a couple of court cases in which employers were held liable for their employees’ debt:
There was a case in Oklahoma in which an employer was responsible for more than $10,000 of an employee’s debt. The answer that the employer submitted in response to the garnishment order contained invalid information as it was deemed “defective” although submitted on time. The employer received a second garnishment order for the same employee but failed to send an answer or start withholding the funds.
“Employers have no choice except to process the order and withhold the amounts required by the order. It is appropriate to inform the employee of such an order, but it does not matter if the employee objects to the employer or denies the validity of it. If the employee has a problem, the employee needs to petition the court.
“If the employer does not follow the order and withhold from the employee, the employer may find themselves responsible for the amount that should have been withheld plus interest and penalties.”
―Charles Read, Certified Public Accountant, Get Payroll
Receiving a garnishment notice or income withholding order can be frustrating. It undoubtedly creates more work for you and possibly some of your employees, decreasing productivity and placing your funds at risk.
If you’d prefer not to deal with the garnishment at all, consider using a professional employer organization (PEO) like ADP TotalSource. It acts your co-employer, filing your payroll taxes under its tax identification number in addition to any garnishment orders.
Frequently Asked Questions (FAQs) on Earnings Withholding Orders
Here are some common questions that employers ask about earnings withholding orders. If you have additional questions on garnishment―earnings withholding―orders or other small business topics, submit them on our forum.
Can employers or employees stop an earnings withholding order?
An earnings withholding order cannot be stopped just because an employee or employer doesn’t want to deal with it. However, if there’s a possibility that the debt is invalid or the employee doesn’t have enough funds to pay the garnishment and take care of their family, the court may make an exception. In either case, the employee will need to apply to provide sufficient documentation supporting their claim.
How should employers handle multiple earnings withholding orders for the same employee?
Employers who receive multiple withholding orders for the same employee must consider the type of garnishments each order represents. Garnishment orders for child support usually trump the other garnishments, unless it’s a federal tax lien that was implemented before the child support order.
It’s a good idea to check with the issuing court to verify withholding priorities. Sometimes, employers can withhold money for multiple judgments at once, and other times, they have to wait until one garnishment is terminated before withholding funds for another one.
May I charge a processing fee to employees for whom I’ve received income withholding orders?
Yes, you can pass processing fees to employees with income withholding orders against them. Most states allow you to do this and call it an administrative fee. State fees are listed on the State Income Withholding Contacts and Program Information matrix.
An earnings withholding order is a legal document that employers receive regarding their employees’ outstanding debt. Whether it’s issued by a court or not, employers are required to withhold funds and remit them to the appropriate creditor. Federal and state laws limit the amount that can be withheld; noncompliance can result in liabilities for employers.
If you need help processing a garnishment order, consider using a payroll service like Paychex. It has HR and payroll experts on staff who can help you avoid being held liable for an employee’s unpaid debt. You’ll send your representative the garnishment order, and it will be processed accordingly. Call for a free quote today.