Posted on Nov 27, 2017

Employers are often prohibited from interfering in the lives of their employers under various privacy laws. But it’s a different matter when employees fail to pay court-ordered child support.

In cases like that, an employer may be required to garnish child support from an employee’s wages. This isn’t uncommon. Employer withholdings account for about 75% of child support payments each year. In addition, wages may be garnished for unpaid taxes and defaulted student loans, among other debts.

With that in mind, here’s a primer on the basic rules of garnishment.

Under the federal Consumer Credit Protection Act (CCPA), employers may be required to withhold child support (or certain other debts) as payroll deductions. But it’s not up to the employer to decide to do this.

Elements of a Withholding Order

Employers are notified by an Income Withholding Order (IWO) from the U.S. Department of Health and Human Services (HHS), which administers the law. The employer must comply with a legally valid IWO, which:

  1. Is for one of your employees or independent contractor,
  2. Is an order for payment or has such an order attached, and
  3. Is a direction for you to submit payments to the state disbursement unit.

However, you can’t fire or otherwise punish the employee simply because of the IWO. This is strictly prohibited by law.

Calculating the amount to be withheld is complex. Initially, the amount is based on “disposable income.” This is the amount remaining after mandatory deductions — federal, state and local taxes, unemployment insurance, workers’ compensation insurance, state employee retirement deductions and other deductions under state law. Generally, federal benefits such as Social Security, veterans’ benefits, and student assistance, among others are exempt from garnishment.

Disposable income and “net pay” aren’t necessarily the same. Net pay might include other deductions (for example, 401(k) plan deferrals) that aren’t figured into disposable income. Tip income, however, isn’t included in wages when calculating disposable income, but service charges are included.

Allowable Disposable Income

The maximum amount available for child support withholding is the “allowable disposable income.” The amount in the IWO may be higher, but the allowable amount is disposable income multiplied by a CCPA limit. Leave the details to your payroll advisors.

If you receive an IWO from a state that is different from the one where the employee works, you must take into account the laws for each jurisdiction. Generally, the employer follows the laws of the state issuing the IWO with regard to:

  • The amount of the child support payments,
  • Payment of fees and other charges, and
  • The state disbursement unit where payments are directed.

Conversely, you generally follow the laws of the state where the employee works with regard to:

  • The time to begin withholding,
  • The time to begin payments,
  • The maximum allowable disposable income limit,
  • Limits on administrative fees, and
  • Other terms and conditions.

FAQs About Child Support Withholding

Besides the basics of garnishments, other questions often come up. Here are some of the ones addressed on the HHS website.

  1. When does withholding of child support begin?
  2. An employer must start child support withholding no later than the pay period beginning 14 days after the IWO is mailed.
  3. Can an employer charge its employees for this withholding responsibility?
  4. Yes. Most states allow employers to charge an administrative fee, subject to a maximum set by the state. However, the fee must come from the employee’s allowable disposable income, not the child support payment.
  5. Where does an employer submit the withholding?
  6. Typically, it is sent to the state disbursement unit, unless otherwise notified. The appropriate unit will be listed on the IWO. Payment may be made electronically or by check.
  7. When does an employer have to send the payment?
  8. An employer must remit the payment within seven business days of the date when wages are paid. Note that some states impose a due date that is even sooner.
  9. What is the length of time for the payments?
  10. Employers must continue to withhold child support until they are officially ordered to stop. If the employee terminates employment for any reason, such as quitting or being fired, the employer should notify the child support enforcement agency. Other rules may apply under state law.
  11. Can withholding be increased if requested by the employee?
  12. Yes. An employer may withhold amounts above the CCPA limit, depending on company policy and state law. Alternatively, an employee may send additional payments to the child support agency for arrears or to avoid accrual of overdue payments.
  13. What happens if a company acquires another company that has IWOs for its employees?
  14. An acquiring company assumes the same legal obligations as the acquired company. It should continue to honor the IWOs, but notify the issuing child support agency as soon as possible about the acquisition and its intent to continue the withholding. Depending on state law, new IWOs may be required.
  15. What happens if an employer fails to withhold the required child support?
  16. If an employer doesn’t properly withhold and remit mandated child support, it is subject to penalties. These may include repayment of the amount of the child support plus penalties and fines. In addition, the state may impose certain fees on the employer.

You can find the full list of FAQs here and more information is available here.

Rely on your payroll advisors to provide the necessary guidance in this area and to fully comply with federal and state laws.