The wage an employee earns is not always the same amount as they get. Usually, the employer makes various deductions from the gross pay before making the payment.
These deductions may include both mandatory and optional amounts. Once employers deduct these amounts from the gross pay, they reimburse the employee with the residual amount. This amount is known as the net pay.
Mandatory payments from wages may include taxes and other contributions. Employers must deduct these amounts from an employee’s pay under the rules and regulations.
Usually, these rules come from state or federal laws and regulations. On top of that, employers may also contribute to pension plans. Some of this amount may come from the employee’s pay. However, it is an optional deduction.
One of the mandatory deductions occurring from the gross pay is wage garnishment. It is a court-mandated deduction that employers make. However, these are very rare. Wage garnishment is a crucial concept for employees that obtain loans. They occur during specific times, meaning they have a start and endpoint. Before discussing that, it is critical to understand what wage garnishment is.
What is Wage Garnishment?
Wage garnishment is when an employer withholds money from an employee’s paycheck. Once withheld, the employer sends that money to another party directly.
Commonly it is also known as garnishment. It occurs when a court instructs employers to deduct payments from a debtor’s wages. In some cases, it may also occur through their bank.
There are three parties in the wage garnishment process. This first is the employee from whose payment the money gets deducted.
Similarly, they are also the debtor to a third party. The third part is the lender who has paid a loan to the debtor before. Lastly, the last party involved is the garnishee. This party is usually the employer who deducts the loan reimbursement amount from the employee’s payments.
Usually, wage garnishment occurs through a court order. In this order, a court instructs an employee to withhold a specific amount from an employee’s paycheck.
Once they deduct this amount, they must send it directly to a creditor or third party. It is the party that has provided the loan to the employee. The employee owes money to the third party from their previous dealings.
Wage garnishment can occur due to several reasons. Some of the most common sources for this process include consumer debts and student loans.
On top of that, employees may also have their wages garnished due to child support. Until the debt gets paid off fully, the process will occur. Sometimes, the loan may be settled or resolved, ending the wage garnishment.
Overall, wage garnishment involves a legal process to withhold money from an employee. This process occurs through a court order.
Once this order gets issued, the debtor cannot control the portion of their wages being garnished. However, employees have many ways to avoid wage garnishment on their payments. Usually, wages get garnished after several issues with repayments.
How are Wages Garnished?
Wage garnishment occurs in specific and rare circumstances. Usually, creditors don’t garnish wages if a debtor fails to meet their repayment obligations the first time.
In most cases, lenders try other collections methods first. However, they can do so within an enforceable period. It is usually when the statute of limitations applies to the loan.
Once a loan nears the statute of limitations, the best option for the creditor is to use wage garnishment. Usually, the lender will go for other methods of recovery first.
For example, they will dispose of a secured asset for the loan if it exists. Even if there is security for the loan, it may not cover the whole amount. In cases where lenders do not fully recover the loan amount, they can use wage garnishment.
However, creditors cannot implement wage garnishment on their own sometimes. They would require legal permission to enforce this process.
Consequently, they must receive a judgment from the court. It must stay how much money the debtor owes, including the principal and interest amounts. The creditor will use the court order to request employers withhold money from an employee.
The employer must follow the court order and garnish wages from the employee. This process occurs similarly to other deductions from wages. As stated above, wage garnishment does not constitute an optional deduction from wages. In contrast, it is a mandatory payment to a third party. Therefore, the employee does not have any say in how much this amount should be.
Once the employer deducts this amount from the employee’s gross pay, they will pay it to the lender. This process continues until the stated time by the court order. On the other hand, the employee will still receive their net pay. However, this pay will exclude the wage garnishment deducted by the employer.
When does Wage Garnishment start and stop?
Wage garnishment does not occur until lenders obtain a court order. However, it may not be necessary to do so in every case. For example, creditors can enforce wage garnishment on smaller loans without a court order. Typically, however, a judgment and an order would be necessary. Once the lender provides the court order to the employer, the wage garnishment process occurs.
However, it may take some time for the court to set a notice to the employer. On top of that, the employer may need to adjust their systems to deduct the wage garnishment to occur. Usually, this process can take between 5 and 30 business days. Various factors determine the initial delay in the wage garnishment process.
Once the process begins, employers will deduct the set amount from the employee’s wages. Some limitations can apply to this process. However, the court order will specify the amount or portion of the employee’s wages for a deduction. This portion depends on various factors, including the type of debt, the state, etc.
The wage garnishment process continues for a specific period. Lenders must recover the loan amount and any interest payable on the provided loan. Usually, it takes several months to complete. The wage garnishment stops when the lender recovers the loaned amount. On top of that, it may also involve recovering any court or legal fees from the employee.
Wage garnishment can also stop if the employee challenges the court’s judgment. They have several options in that regard.
What can employees do when they face Wage Garnishment?
Employees must consider various factors when they are facing wage garnishment. In those cases, they must ensure they follow the tips below.
- Firstly, the employee must receive a legal notification about the garnishment.
- They can file a dispute if the notice does not include accurate information.
- If the notice is accurate, they can contact the creditor to try and reach a mutual alternative solution.
- Alternatively, they can challenge the garnishment legally.
- Employees can also file a claim of exemption to stop the garnishment.
- They can also consolidate or refinance their debt to avoid wage garnishment.
If employees cannot reach an alternative solution, they must accept the wage garnishment. Employers cannot stop these payments based on employees’ requests.
Wage garnishment occurs when employers deduct specific amounts from employees’ payments. These amounts get paid to a third party, usually a lender. Essentially, wage garnishment is a loan recovery from an employee’s wages. It starts through a court order issued to the employer. It stops when the loan gets recovered, or the employee challenges it.