What Restaurants Need to Know About Payroll Garnishments | Food Newsfeed
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Handling garnishments correctly is crucial for legal compliance.

What Restaurants Need to Know About Payroll Garnishments

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Understanding how deductions work is critical for foodservice leaders.
By Sean Dawson November 2017 Expert Insights

Millions of wage garnishments are issued every year, meaning most employers have probably processed one or two wage garnishments. If you haven’t dealt with payroll garnishments before, they can be confusing. 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 have to respond to a writ of garnishment even if it’s 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—states’ wage laws differ from each other and from federal law. It’s important you understand the laws in the state or states in which you operate to accurately calculate garnishment amounts.

Is there a limit 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 or 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 has to be paid within 10 days of receiving the garnishment.

Can I terminate an employee who has a garnishment?

No, you can’t terminate an employee because they have a garnishment.

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

No, 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. Also this conversation can be uncomfortable for an employee, so don’t have the conversation in front of other employees or on the restaurant floor.

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, healthcare 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. A good practice before you discontinue the garnishment is to call the attorney listed on the garnishment order and find out what the final pay off amount is. It’s important to get the final figure because there maybe fees and interest that have accrued on the garnishment which means the final pay off maybe much different than the original garnishment amount.

What are the steps if an employee leaves our restaurant?

Depending on the state 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. 

Sean Dawson, CPA, is a shareholder in Mize Houser & Company’s Hospitality Services Group, which provides tax, accounting, payroll, bill payment and consulting services to restaurants nationwide.