Earnings Withholding Orders: What Employers Need to Know
This article is part of a larger series on How to Do Payroll.
An earnings withholding order is a court-issued wage garnishment requiring employers to withhold and remit money from an employee’s paycheck to pay a creditor for an unpaid debt. Some examples of such debt are past-due student loans, unpaid taxes, and other delinquent bills. (But what about spousal or child support? That’s technically an income withholding order, which we will cover briefly later in this guide.)
To avoid liability, employers should immediately and only withhold what’s required in the order and ensure the funds are sent to the appropriate agency.
Key Takeaways
- An earnings withholding order is issued by a court that has ruled in favor of a creditor, in a dispute over one of your employee’s unpaid debts.
- Employers are required to deduct and remit an applicable amount from an employee’s payroll, following the terms indicated on the court-issued wage garnishment.
- An earnings withholding order is used to collect debt payments for the employee’s defaulted student loans, unpaid state or federal taxes, and delinquent bills (such as credit card and medical bills).
- An income withholding order is used to garnish wages for an employee’s financial support obligations (e.g., child and spousal support) and can be issued even if the worker isn’t behind on payments.
- Both wage garnishment orders are subject to federal and state regulations.
If you need help processing a garnishment for an employee, consider using a payroll software like Rippling. It supports all garnishment types, automatically deducts the applicable amount from the employees’ payroll, and can even remit wage garnishments to the appropriate agency. Sign up for a Rippling plan today and get the first month free (note that this promotion can end at any time).
How Earnings Withholding Orders Work
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 wage 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 if the employer can deduct any administrative fees.
Federal laws, along with state regulations, regulate the wage garnishment process. An example is Title III of the Consumer Credit Protection Act (CCPA), which limits the amount that may be garnished. Generally, you’re not allowed to deduct more than 25% of an employee’s income for non-child 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; these are issued by state agencies to help parents or spouses collect on financial support.
The garnishment notice usually comes with a set of instructions so that you know how to use the information and calculate the amount to withhold. It’s important to follow the proper procedures indicated to avoid any payroll compliance issues.
Garnishments should also be deducted from the employee’s “disposable income,” according to the CCPA. This refers to the worker’s remaining salary after all of the legal deductions, such as:
- Federal, state, and local taxes
- Employee share for Social Security, Medicare, and state unemployment insurance
- Withholdings for retirement programs required by law
Common Information You’ll Find on Earnings Withholding Orders
All garnishment orders look different depending upon the state in which they originated—but these 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.
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 government agency (for past-due taxes). The order may also provide contact information, including an address. Unless the earnings withholding order specifies that you’re supposed to send payment directly to the plaintiff, don’t assume that’s what you should do. You and your company could be liable if payments are made incorrectly and not in compliance with the order.
- Defendant and 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. You must verify this information to ensure you’re withholding money from the right person.
- State and court information: This is the state and 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. The order will also list here if you’re allowed to withhold administrative fees and in what amount.
In most states, earnings withholding orders contain at least a brief set of instructions so that you know how to process them. If you have questions, always check with the issuing agency for help. Assuming or trying to figure it out on your own will inevitably cause problems.
Processing an Earnings Withholding Order
Now that you know how earnings withholding orders work and the common information included in these court-issued wage deductions, below are the steps on how to process the garnishment orders.
Step 1. Receive the 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. Other municipalities may send these orders by regular mail—do not ignore them.
Step 2. Send a response
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 the worker has other garnishments, and whether your company can comply with the order on the commencement date.
Step 3. Calculate withholdings
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. If you’re doing this calculation yourself, it’s crucial that you triple-check your work. Are you calculating off the employee’s gross or net pay? Are you ensuring your employee has the minimum percentage required under state law as take-home pay?
Step 4. Speak with the employee (optional)
It’s also advisable to speak with the employee. Do this in a private setting and with compassion, as some people may be embarrassed. While you can’t refuse to comply with the order even if the employee asks you to, it’s good practice to let the employee know you’ve received the order and that they’ll be getting less money in their take-home pay.
This debt probably isn’t a surprise to the employee but they may be shocked if they see more money out of their next paycheck. Prepare them in advance by having a quick discussion with them. In my experience, once you bring up the debt with an employee, while not always happy about the extra deductions from their pay, they understand.
Step 5. Withhold garnishments and send it to the creditor until paid in full
It’s vital to start withholding the employee’s funds on their next paycheck or on the date requested in the order, following the receipt of the garnishment order to remain in compliance. You’ll send the payments according to the instructions in 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 Earnings 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 for debts issued by a government agency such as student loans. Some debts, like for back child and spousal support, can be garnished from a paycheck—but these may 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:
It’s important to note that in addition to federal regulations, there are many states that have their own regulations regarding earnings withholdings orders. Be sure to check with your employee’s specific state before making any deductions.
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 many types of debt, with the exception of debt for financial support.
Meanwhile, 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. These are a high priority on the list of garnishments and take precedence over other debts—something to keep in mind if you have an employee with multiple garnishments.
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.
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. As an employer, it’s important that you understand how much can be deducted before doing your payroll. It depends on how much money you’re paying the employee in total and if the debt is for financial support or an alternate category. If their disposable income is too low, you won’t be able to garnish any of their paychecks per a garnishment notice.
Regardless of the number of wage garnishment orders you receive for an employee, you have to follow the limits set by the CCPA. The weekly amount to be garnished may not exceed the lesser of these two figures:
- 25% of the employee’s disposable income
- The amount that the employee’s disposable earnings are more than 30 times the federal minimum wage (example: $7.25 X 30 = $217.50 for a weekly pay period)
Here’s a breakdown of the maximum garnishment amounts you can process for each disposable income level (based on the $7.25 minimum wage)*:
Weekly | Biweekly | Semimonthly | Monthly |
|---|---|---|---|
$217.50 or less: $0 or no garnishment | $435.00 or less: $0 or no garnishment | $471.25 or less: $0 or no garnishment | $942.50 or less: $0 or no garnishment |
More than $217.50 but less than $290.00: Amount ABOVE $217.50 can be garnished | More than $435.00 but less than $580.00: Amount ABOVE $435.00 can be garnished | More than $471.25 but less than $628.33: Amount ABOVE $471.25 can be garnished | More than $942.50 but less than $1,256.66: Amount ABOVE $942.50 can be garnished |
$290.00 or more: MAXIMUM 25% can be garnished | $580.00 or more: MAXIMUM 25% can be garnished | $628.33 or more: MAXIMUM 25% can be garnished | $1,256.66 or more: MAXIMUM 25% can be garnished |
(Source: United States Department of Labor’s CCPA Fact Sheet)
*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.
The garnishment limits help 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 to help you determine the amounts subject to garnishment, based on the current $7.25 per hour federal minimum wage:
Scenario 1 | Scenario 2 |
|---|---|
Pay period: Weekly Employee’s Gross Earnings: $265 Disposable Income After Taxes: $225 Amount to be Garnished: $7.50 In a weekly period, only the amount higher than $217.50 may be garnished when disposable income is less than $290. | Pay Period: Biweekly Employee’s Gross Earnings: $660 ($600 for the first week, $60 for the second week) Disposable Income After Taxes: $600 Amount to be Garnished: $150 In a biweekly period, when an employee’s disposable income is at or higher than $580 for the pay cycle, you can garnish up to 25% (doesn’t matter that the income in the second week is less than $217.50). |
If you’d like to have a legal expert you can trust to review your legal documents, like garnishment orders, check out our guide to online legal services. Companies like Rocket Lawyer can help businesses comply with the law to avoid drama and penalties. You can get assistance filing paperwork for your business, applying for permits, and much more.
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 the employee is 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 or collection companies under contract with the agencies can require you to withhold up to 15% of an employee’s disposable income for nontax 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.
Did You Know?
If a state wage garnishment law results in a lower amount of the employee’s earnings being deducted, then that law will be followed instead of the CCPA’s guidelines.
Laws for Employers Processing Garnishments (by State)
Besides the limits placed on withholding amounts, the law also protects employees from being discriminated against or mistreated due to the judgments 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 thousands of dollars in fines, penalties, and back pay. In extreme cases, you can be sentenced to serve jail time.
Click your state from the interactive map below to see the garnishment laws it follows.
Penalties for Not Complying With Wage Garnishment 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, although submitted on time, contained invalid information and was deemed “defective.” The employer received a second garnishment order for the same employee but failed to send an answer or start withholding the funds.
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, check out our guide to professional employer organizations (PEOs). A PEO acts as your co-employer, filing your payroll taxes under its tax identification number in addition to any garnishment orders.
Frequently Asked Questions (FAQs)
How do you calculate a 25% garnishment?
Let’s say your employee is paid every other week and has a disposable earning of $580. Twenty-five percent of $580 (580 x 0.25) is $145. This is the maximum amount that may be garnished.
What is WG 005?
WG 005 is the Employer’s Return form. The levying officer or sheriff sends this to the employer of the worker who has a court-issued wage garnishment order. Employers use this form to provide information about the worker’s pay schedule and other garnishment orders (if any). It must be completed and returned to the levying officer (or sheriff) within 15 days.
What does the issuance of IWO mean?
IWO stands for income withholding order. The issuance of an IWO simply means an order has been approved and sent to an employer telling them to withhold a certain amount of money from an employee’s pay.
How do I stop Franchise Tax Board garnishment?
The best way to stop a garnishment is to pay off the associated debt. If a garnishment has been paid in full, contact the number listed on the order for instructions.
Bottom Line
An earnings withholding order is a legal document that employers receive regarding their employees’ outstanding debt. Whether it’s issued by a court or a government agency, 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.
Regardless of whether you have one or more employees with earnings withholding orders, managing payroll garnishments can be stressful. We recommend partnering with a payroll provider, like Rippling, to make the process easier. You only need to set up the deductions and Rippling will garnish and remit the amounts for you.
Sign up for a Rippling plan today!
