Jodi Kerr, Tax Principal at TD&T CPAs and Advisors, P.C., provides some insight on types of wage garnishments and possible employer risks.
Many businesses are dependent on a dedicated, dependable work force. Hiring, retaining and compensating employees adds another level of challenges to a small business owner. One specific challenge involves managing employee wage garnishments. This process is not always simple.
When an employee is hired, you may not realize they have a wage garnishment that you will need to manage–or a garnishment might be ordered sometime after you employ them. Since these garnishment orders are issued by either the court system or a government agency, it is important to handle the calculations correctly and remit the funds as required.
Common Types of Garnishments:
• child support
• creditor garnishments
• bankruptcy orders
• student loans
• tax levies
The highest volume of orders handled by employers are for child support. Some of the laws surrounding child support are standard, but there can be variations by state. You must pay special attention to the documents received that dictate the calculation of the garnishment, timing of the payment and how to remit the funds. The calculations alone can get tricky when factoring in pay period frequency, retirement plan deferrals, other garnishments, and limitations on percent of net pay. Also, customarily the employer is required to provide a copy of the garnishment order to the employee. Some garnishment orders allow the employer to charge the employee a processing fee per pay check. Some employers don’t charge the minimal fee due to the added financial burden on their employee.
Potential Employer Risks
As the employer, you are exposed to financial and legal risk for errors made while managing a garnishment order. If a garnishment is mishandled, it can lead to judgement against the employer for the employee’s debt, a lawsuit from a creditor or the employee, or assessment of penalties. Therefore, if there is any uncertainty or questions surrounding an order your business has received, contact a payroll professional for assistance. This is a situation you want to handle correctly from the beginning and the accounting services staff at TD&T have the experience needed to get you on the right track.
As the volume of wage garnishments continues to increase, electronic funds transfer (EFT) has become available to save time, improve efficiency, and potentially reduce costs of managing wage garnishments. The time spent managing garnishments and the financial and emotional impact on the affected employees can result in decreased productivity and motivation. The employer may consider providing financial training and some tax education to assist employees in managing their debt or other obligations.
If you have specific questions or concerns about employee wage garnishment orders, give us a call and we’ll be happy to assist you.