by Stacy Smith, CPA

Millions of wage garnishments are issued every year, meaning most employers have probably processed at least one or two. If you haven’t dealt with payroll garnishments in your restaurant, they can be confusing and the penalties for not handling them correctly can be significant. Keeping the following things in mind can help you meet your obligation to manage payroll garnishments.

What is a payroll garnishment?

A wage garnishment is a process of deducting money from an employee’s compensation or wages, usually as the result of a court order generated to pay a creditor. Garnishments are a pretty severe consequence of an employee who is usually behind on debts that can include back taxes, child support, student loans, personal loans or judgements from a court case.

How am I notified about a garnishment?

You will receive a garnishment notice in the mail, not through email. You are required to respond to a writ of garnishment even if it’s sent in error. Failing to comply with an order could result in noncompliance with a court order and leave you on the hook for the entire amount of the debt.

Do garnishment laws differ from state to state?

Yes, they do! States’ wage laws differ from each other and from federal law. It’s important you understand the laws of the state(s) in which you operate to accurately calculate garnishment amounts.

Is there a limit on the amount that an employer is allowed to take for a garnishment?

For ordinary garnishments (those not for support, bankruptcy or any state or federal tax), the weekly amount may not exceed the lesser of two figures: 25 percent of the employee’s disposable earnings, or the amount by which an employee’s disposable earnings are greater than 30 times the federal minimum wage.

When you receive a garnishment notice, the first garnishment payment has to be paid within 10 days of receiving the notice.

Can I terminate an employee for having a garnishment?

No, you can’t terminate an employee because they have a garnishment. If your payroll is processed by an outside company, they likely charge you an additional fee for each garnishment payment due to the added time required. Some states allow you to charge the employee that fee to recoup your losses. However, keep in mind each state has different laws, so make sure you are following the laws of the state(s) in which you do business.

Do I have to tell the employee that there is a garnishment?

You aren’t obligated to tell an employee that you received a garnishment, but it’s a good practice to tell an employee so they can prepare in advance. This conversation can be uncomfortable for an employee, so it’s best to have the conversation in private.

What does a garnishment include?

Garnishments are calculated on all earnings, including salary, bonuses, vacation pay and pensions.

When figuring disposable earnings, use the employee’s gross wages minus all mandatory deductions, including federal or state withholding, FICA and Medicare. In some states, health care deductions are not considered mandatory so the garnishment is calculated before the health deduction when you figure the garnishment.

How long do I need to continue the garnishment?

You need to continue to pay it until you receive a Release of Order or the garnishment is paid in full. Before discontinuing the garnishment, a good practice is to call the attorney listed on the garnishment order and find out the final payoff amount. It’s important to get this figure because there may be fees and interest that have accrued on the garnishment, making the final payoff amount much different than the original garnishment amount.

What are the steps if an employee leaves our restaurant?

Depending on the state(s) in which you operate, there is a form you need to complete that goes to the attorney on the garnishment and the state. If an employee terminates his or her employment with you, it’s a good idea to have documentation of how you’ve complied with the garnishment order. Documentation is your best friend!

Payroll garnishments can be confusing especially if you have restaurants located in multiple states. Be sure you find advice from an expert who can help you understand the requirements in each state to ensure you are following the rules.

Stacy Smith, CPA is a shareholder in the Mize Restaurant Group. Mize Houser & Company P.A. is a full-service accounting firm that provides the Elevanta Accounting & Payroll Solution for FBS members.