Workshop . . . May 24, 2007

How to Comply With Garnishments

Workshop:
Garnishments: Up Close and Personal

Speakers:
»Larry White, CPP, Director of Payroll Training, American Payroll Association
»Karen Salemi, FLMI, CPP, N.A. Payroll Manager, IBM
»Daphne Risch, JD, Senior Associate, Office of Child Support Enforcement

“Compliance is a huge part of our job and our job is to protect our company from penalties and interest. Our job is to understand what the rules are,” said Karen Salemi, Payroll Manager for IBM.

Employers that honor child support orders have immunity against penalties and interest, Daphne Risch, JD, senior associate for the Employer Services Team of the Office of Child Support Enforcement, explained. If employers do not comply with child support orders or discharge employees for child support orders, they will face penalties, she continued.

Child support orders are issued either by a judge or by a state agency. When you receive an income withholding order, the first thing you should do is “document when you received it and implement the order if possible,” advised Risch. You also should confirm that the employee works for you. If the person named in the order does not work for you, you should notify the agency that sent the order.

If the person does work for you, “determine if the amount requested is available under the withholding limits,” Risch said. The limits for child support withholding are 50 percent of disposable income when an employee is supporting a second family and 60 percent when the employee is not supporting a second family. These limits increase to 55 percent and 65 percent, respectively, if the employee is 12 or more weeks in arrears, Risch explained. Disposable income is that part of earnings that remains after the deduction of any amounts required by law to be withheld.

Processing two or more child support orders only becomes an issue when there isn’t enough money to pay both under the limits, Risch continued; otherwise, you just pay both. A few states require equal allocation, which means if you have two orders and can’t fulfill both completely, you divide the amount available for withholding by two. In other words, “everybody gets the same amount,” Risch explained.

Other states require pro rata allocation for multiple orders. For instance, if Case A has an obligation of $400 and Case B has an obligation of $200 but the total available for withholding is $300, Case A receives $200 and Case B receives $100.

Interstate withholding orders must be treated the same as orders from your own state, Risch explained. Follow the same processing rules as for in-state orders when it comes to timeframes, priority, withholding limits, and fees.

Complying With Federal Tax Levies

When you receive a federal tax levy, inform the employee and give the employee the parts of the form that he or she will need to fill out, Salemi explained. IRS tax levies are taken out of net pay and not disposable pay. If an employee has voluntary deductions, no changes can be made to those deductions after receipt of a tax levy, Salemi continued.

“Tax levies are reverse withholding,” Salemi said. This means you determine the amount the employee keeps versus how much can be taken out. Amounts withheld for tax levies must be remitted on payday. Unlike child support, administrative fees are not allowed for tax levies.

You should continue to withhold for tax levies until you get a release of the levy, Salemi advised.

And With Creditor Garnishments

Creditor garnishments can be tricky when third party vendors are involved. “If they make a mistake, it’s still your problem,” Salemi said.

You also may have to deal with garnishments for federal student loans, Larry White, Director of Payroll Training for the American Payroll Association said. Federal law does not allow administrative fees for student loan garnishments, but your state law may, so you will want to review that.

When it comes to bankruptcies, there are usually few obligations for a Chapter 7 bankruptcy, but you should contact the trustee, White advised. For Chapter 13 bankruptcies, deduct the amount stated in the notice from the trustee. These deductions are treated as voluntary deductions and are not subject to Consumer Credit Protection Act limits, White explained.

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