June 23, 2024

Throughout your career, you will likely encounter moments that require you to translate complex information into something easy to understand. This is a powerful skill that all true leaders possess. Wage garnishments are no exception. As a payroll professional, knowing how to inform your employees as quickly and privately as possible is important.

Setting Up Garnishment Creditors

If one of your employees owes money to a private creditor and they don’t pay up, the creditor can sue them for wage garnishment. If the creditor wins the lawsuit and gets a judgment, they can get a court order to garnish your employee’s wages. Creditor garnishments usually consist of credit card and medical bills, personal loans, or unpaid debts that a creditor obtained by default. If your employee is going through a divorce or their spouse is filing for custody, they may be subject to child or spousal support garnishment orders. These can be complicated, and any issues or questions your employees have must be handled between them and their spouse or divorce attorney. Your company is not responsible for managing or answering any of these matters. So,¬†how garnishments payroll works? You can set up wage garnishment deductions within your payroll system. You must add the Garnishment item, select the method (fixed dollar or percentage of pay), and enter the garnishment amount. If the garnishment has limits, enter them in the Limits field.

Specifying a Minimum Net Pay

You can specify a minimum net pay for each employee when setting up garnishment deductions. The conclusion will be stopped immediately if the net income exceeds the required amount to meet a garnishment obligation. The minimum net gain can be specified as a percentage of the total disposable earnings. This information is displayed on the garnishment detail screen for each employee.

Some of the best payroll software options offer additional employee pay methods beyond direct deposit, such as paper checks or app-based payments. They can also include comprehensive human resource management features and impressive reporting for deep visibility into business expenses. A good payroll solution will simplify configuring the system according to your needs. Look for a solution that offers a configuration with minimal coding or IT involvement and one that provides built-in workflow templates and recommended formulas for determining deduction amounts.

You can also expect a good payroll provider to make it simple to handle changing tax laws and other compliance requirements. This includes ensuring payroll taxes are paid accurately and on time and complying with wage garnishment rules. In addition, a top provider will be experienced working with organizations of your size and industry to support your operations and provide you with a reliable partner for all your payroll needs.

Specifying the Priority of Other Deductions

Keeping track of garnishments can be challenging for payroll professionals. It is important to understand the rules for how much can be withheld and the priority of which garnishments are paid first. Getting this right can help avoid potential violations of federal and state wage garnishment laws, which may lead to expensive fines.

You must set the DE Definition on the Garnishment Rule Disposable Earnings page when entering a new garnishment. This will specify how the deduction should be subtracted from an employee’s wages. This includes the amount to be withheld, the date it should stop, and the percentage rate to be withheld.

This page also determines if the garnishment should be calculated as a lump sum or in installments. This is important because some states require that a garnishment cannot be more than a specific amount each pay period.

You can use the Proration Rule state to select a default proration rule for Writs. For example, if the condition is Oklahoma, you can enter FIRST1 to specify that the system will handle multiple writs on a first-come, first-serve basis. For a FIXAMT type of deduction, you can use the Specify FWT Additional Amount criteria box to enter an amount or percentage for the system to subtract from each paycheck. Finally, you can check the Take on all Paygroups checkbox to ensure that any employee with jobs in different pay groups will take this deduction from each.

Keeping Track of Garnishments

When an employee gets a garnishment, it typically comes from a court order or government agency action that requires an employer to withhold a percentage of the employee’s paycheck. The amount withheld can vary from 15% to 50% of net pay, depending on the debt or financial obligation type. This includes any tips, commissions and bonuses the worker may receive in addition to their base salary.

Once a court or agency issues the garnishment¬†order, an employer must immediately comply and start the deduction process. Often, a garnishment must be completed within 30 days from the date of service of the writ or order. Most debt-related garnishments are based on an individual’s disposable earnings, which is left over from mandatory deductions like taxes and Social Security. For example, federal law mandates that employees’ wages be garnished no more than 30% of their weekly disposable earnings for certain types of debt under Title III of the CCPA.

Once a debt has been paid or released through another arrangement (like voluntary payments or a settlement), it’s important to record all the details correctly. A good payroll software solution will simplify this process and ensure all necessary paperwork is submitted to the proper government agency.