Small Business Mistakes on Wage Garnishments
Call it what you will, repayment, garnishments, wage withholding, deductions or Voluntary Wage Assignments… The fact of the matter is, you can’t just withhold payment from an employee for any given reason.
Let’s start with the meaning behind a Wage Garnishment. A wage garnishment is any legal or equitable procedure in which some portion of a person’s earnings are withheld. There are many types of legal or equitable procedures for garnishments. Some are made by court orders, like child or spousal support. Others like student loans and tax debts and even garnishments from creditors can come across your desk. Garnishments do not include Voluntary Wage Assignments but we will get into that later on.
There are limitations on the amount that can be garnished from one’s earnings. Title III of the Consumer Credit Protection Act protects an employee from being terminated or reprimanded if pay is garnished for only one debt. Title III protects everyone who receives personal earnings.
What are personal earnings? Earnings as compensation include:
- Bonuses or
- Other Compensation
Specifically, with regard to wages there are limitations on how much can be garnished.
The amount to be garnished is based on an employee’s disposable earnings. That’s the amount an employee earns after all legally required deductions are taken out. Some examples of those include Federal, State, local taxes and Social Security taxes. Title III sets the max amount that may be garnished. Child Support or Alimony garnishments cannot exceed 50% of one’s gross wages and no more than 60% of one’s gross wages if they are not supporting any other family member or spouse. These limitations differ from Non-Taxed debts and general garnishments.
Voluntary Wage Assignments
A voluntary wage assignment is an agreement between a creditor and debtor that authorizes the employer to deduct a certain amount of money from the debtor's paycheck to repay a loan. Creditors can’t take money out of your paycheck just because you owe money. They need a legally authority such as a court order or a voluntary assignment.
Other Garnishments - Can I deduct the cost of damages caused by my employees?
If your employee breaks a piece of equipment and you need to recover the cost of the item, you should have a signed authorization from the employee. An employee must make more than the mandated federal minimum wage. As long as the deduction does not drop the employee’s hourly rate below the federal minimum wage, you can continue through with the deduction.
Under certain circumstances, you may be able to deduct damages from an hourly employee’s wages even without their consent.
If your business suffers a monetary loss because a salaried employee unintentionally breaks a piece of equipment, you cannot deduct charges from his paycheck to cover the cost. Because your employee is salaried, they are receiving a regular, predetermined salary on a "guaranteed basis." Making regular deductions from their salary drops his salary below the level agreed upon.
However, employers in California may be able to deduct damages from a salaried employee's paycheck for breakage, cash shortages and equipment loss caused by the employee's gross negligence or a deliberate, dishonest act. Unintentional damaged or lost equipment is simply considered part of the cost of doing business in California. As such, an employer can only deduct for equipment loss if he is able to prove his employee caused the loss deliberately or by acting in a grossly negligent manner.
Updated on May 8, 2017 11:52