When an employee does not pay off his or her debt, a creditor may turn to wage garnishment as a means of collecting the money that is owed. Under New York State law, creditors are restricted in the amount that they can garnish from an employee’s wages for repayment of debt. It is important that New York employers accurately and appropriately manage wage garnishment while remaining in compliance with the law.
Wage garnishment, commonly known as income execution, is an order from the court or a government agency that is sent to an employer. The order requires the employer to withhold a certain amount of money from their employee’s paycheck and he or she will send the money directly to the creditor. Not all debt can be subject to wage garnishment and different rules apply to different types of debt. For example, if an employee is behind on their credit card payments, the creditor cannot garnish his or her wages unless they have sued the employee for repayment and get a judgment. However, wages such as unpaid income taxes, court-ordered child support, child support arrears, and defaulted student loans do not require a court order.
There are limits as to how much money can be garnished from an employee’s paycheck. In New York State, a creditor can seek to garnish 10 percent of an employee’s wages or 25 percent of their disposable income provided that their income exceeds 30 times the minimum wage measured on a weekly basis. Disposable income is the amount of wages that are left after deductions, such as federal, state, and local taxes, Social Security, and the employee portion of state compensation insurance. (Deductions that are not required by law do not reduce disposable income.) If the employee’s disposable income is less than 30 times the federal minimum wage, it cannot be garnished at all. For example, the current federal minimum wage is $7.25 an hour and if an employee makes less than 30 times this amount in disposable income ($217.50), he or she cannot have their wages garnished.
There are set limits on how much of an employee’s wages can be garnished for student loans, child support and unpaid taxes. For student loans, the U.S. Department of Education or any other entity collecting for the agency can garnish up to 15 percent of an employee’s disposable income, but not more than 30 times the minimum wage. All court orders for child support include an automatic income withhold order. If an employee falls behind in child support payments, the other parent can get an income execution order from the court. Under federal law, up to 50 percent of an employee’s disposable earnings may be garnished to pay child support if he or she is currently supporting a spouse or child who isn’t a subject of the order. If he or she isn’t supporting a spouse or child, up to 60 percent of their earnings may be taken. The employee may be subject to an additional 5 percent garnishment if the support payments are over 12 weeks in arrears.
The federal government can garnish an employee’s wages if he or she owes back taxes, even without summary judgment. The amount that can be garnished depends on how many dependents the employee has and his or her deduction rate. State and local governments may also garnish an employee’s wages over unpaid state and local taxes. New York State can garnish up to 10 percent of an employee’s wages for unpaid taxes. For employees who have more than one garnishment, the amount that can be taken out of their paycheck is limited to 10 percent of gross wages or 25 percent of disposable income, depending on which amount is less.
Although the order may have direct financial and emotional effects on employees, employers may be subject to financial and business efficiency effects as well. Employers may be put in legal and financial risk when they fail to correctly garnish an employee’s wages, fail to follow specific guidelines when sending payments, file a defective response, or make another oversight when it comes to wage garnishment. An employer’s misstep in handling wage garnishment can lead to a lawsuit from the creditor or employee, a judgment against the employer for the entire amount of the employee’s debt owed, or a penalty or fine that the employer did not anticipate or financially plan for.
If you are an employer and are looking for legal guidance when it comes to wage garnishment laws or another employer-employee regulation that impacts your business, it is important to consult an experienced business law attorney. The New York business law attorneys at Blodnick, Fazio & Associates PC are experienced handling employer-employee matters and are available to assist you with an employment law issue that arises so that you can concentrate on building a successful business. For more information or to schedule a consultation with our New York business and employment law firm, call (516) 280-7105 or fill out our contact form.