There’s an official-looking letter on your desk: a court has informed you that a debtor is employed at your firm and you will have to start withholding the employee’s pay accordingly. There are instructions for handling this, and a notice that you will be held in contempt if you don’t respond.
You will most likely have to determine the amount of garnishable wages for each pay period and withhold those wages as directed by the court order until the judgment is satisfied, or until the court orders you to stop withholding.
You will need to report and distribute the total amount of wages withheld to the creditor or the creditor’s attorney, usually within 15 days after the close of the employee’s last pay period in the month. If another garnishment is received, you have to follow the same procedure but, of course, that payment goes to a second creditor and cannot be paid until the first garnishment has been paid in full.
In return, you should receive a statement listing the payments that were received and how they are going to be applied to the judgment principal, costs, interest and fees.
Going forward, you will need to tell the court and all related parties if the employee stops working or is fired. The garnishment will typically terminate 90 days after the end of employment, unless you hire the employee back.
You should know that federal law limits the amount of earnings that can be garnished to 25 percent of disposable income or the amount that income exceeds 30 times the federal minimum wage, whichever is less.
If there are problems complying, you may oppose the garnishment by filing a motion in court, and will need a lawyer for that. For example, you may claim that the garnishment sought by the creditor amounts to exempt earnings that belong to the employee. Basically, however, you want to comply and move on, although you are not required to turn over property that’s not in your possession or to collect from your employee any tips that were paid directly to the employee by your customers.
This is just an introduction to a complex subject, and state laws may affect some of these rules. The best you can do is read any court orders promptly, follow the instructions, and consult with a professional if you have any questions.
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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