First, a garnishment must be handled immediately upon receipt. It cannot wait for the dozens of other tasks that may have come before it. Garnishments are time sensitive and failure to process the garnishment within the allotted time frame can lead to penalties for the company.

When a garnishment is received by the payroll department is must be examined, set up, processed and reconciled. And for payroll to accomplish this, each garnishment must be handled in the exact same manner every time to prevent any required steps from being skipped. Written procedures should be in place for handling garnishments. This is not a task that should be done by memory or route, even if the staff member handling the garnishment has "20 years of payroll experience." A checklist should be used with each garnishment to ensure that each step has been completed. The check list should be filed with the garnishment for a complete audit trail.

Setting It All Up...
The steps to setting up a garnishment for processing include:

• Payroll first. All garnishments or what appears to be a garnishment or what could be a garnishment should always come to the payroll department first. Most garnishments are mailed to the employer these days. So when the garnishment is received in the mail room, this is the first opportunity for it to go astray or for security to be breached. The payroll department must set up a list of all possible return addresses that could signal a garnishment is inside the envelope. The payroll department needs to create a list of the exact names and addresses of the federal and state agencies it knows has, will or could send a garnishment to them. This list would include all the agencies for the states in which the company is located that issues state tax levies, the Internal Revenue Service and all child support agencies the department is currently aware of. In addition, the list of agencies for each state that handles defaults on student loans should be included. Then the payroll department needs to create additional generic names for garnishments that may come from agencies or states where the department has not had first hand contact with as of yet. This list could include names and addresses such as:
  
  
  • Anything with "Child Support" in the address
    
    
  • Any state agencies with the word "Revenue" in the title
    
    
  • Anything with the words "sheriff", "marshal", "wage attachment", "wage assignment", or "clerk of the court" in the address.
    
    
    
• Date stamp. Every garnishment should be date stamped on the day it is received in the payroll department. This begins the audit trail and establishes the garnishment’s timeline for processing.
  
  
• Verify. It is the responsibility of the payroll department to ensure that all the garnishments it processes are legal and valid. This means making sure that it belongs to an employee of the company, it is from the proper source, it was delivered properly on the proper form, it is completed correctly and that it is allowed under the applicable laws. As for the legal decision, some companies have decided to take this decision away from payroll and turn it over to in-house counsel.  With the complicated rules, regulations and now case law that surrounds garnishments, this may be the wave of the future for payroll, working directly with counsel. The verification list should include:
  
  
  
  • Is it our employee? The payroll department must determine if the employee is currently working for the company. This is done by verifying the social security number and name on the garnishment against the payroll records. If the name matches, but the social security number does not, that does not mean that the garnishment is invalid. It could be an error in the issuing party’s records or in the payroll records. If this occurs the payroll department needs to contact the issuing party to verify the garnishment is valid. If the garnishment does not belong to any employee on the payroll records or the employee did work for the company but is now terminated, then the payroll department needs to return the garnishment to the issuing party with a letter of explanation.
    
    
  • Is it from the proper source on the proper form? A tax levy on Form 668-W from the IRS is an example of a proper source on a proper form. If it is for child support did it come from the child support agency on an Order/Notice for Child Support or is it from an attorney’s office? If it is from an attorney, it doesn’t mean the garnishment cannot be accepted and processed. It just means that anything that comes from someone other than the normal issuing party for that type of garnishment and it is not on the normal form that the issuing party would use needs to be investigated further to make sure the garnishment is legal and valid.
    
    
  • Completed correctly? Is the form completed correctly with all the proper information provided? If any required information is missing, the payroll department will need to contact the issuing agency to have either a new form delivered or faxed over.
    
    
  • Delivered properly? Was it mailed directly to the payroll office or did an employee or someone else just drop it by? Depending on the type of garnishment, this either way may be valid. The payroll department just needs to make sure that the form was properly delivered.
    
    
  • Allowed under the law? Is this garnishment legal under the governing laws? Where the employee works and lives can determine what garnishments can be processed. For example: some states do not permit creditor garnishments. If this employee works in such a state, but the employer is located in a state that does allow this type of garnishment, then the employee's work state laws would prevail. Also, are there other, higher priority garnishments ahead of it? These are some of the laws that the payroll department must research to decide if the garnishment is legal and can be processed.
    
    
• Answer back. Once the garnishment has been determined to be valid it must be processed through the payroll and the first step after verifying the garnishment is to answer it. Most of the garnishments received today have forms for the response included with the garnishment and the time allotted to respond is usually very limited. So once the verification is done, the responses should be completed and returned to the issuing party. If no response is included with the garnishment and state or federal law do not require a response then payroll can move on to the next step if it desires to. However, some payroll departments prefer to always include this step. So if no response form is included, it uses a template it has created for this purpose.
  
  
• Go tell it to the employee. The employee must always be informed of garnishments that have been received. Most forms, such as the IRS Tax Levy include parts that must be given to the employee. This required notification usually has a limited time frame as well. In addition to the required notification provided with the garnishment, the payroll department should include a letter from it explaining how the garnishment will be handled in the payroll department.
  
  
• Determine the pecking order. If the employee has more than one garnishment, then the payroll department needs to determine the pecking order or deduction priorities for the garnishments. Different types of garnishments carry more weight under the laws than other types of garnishments and they must always be deducted before anything else. Once the priority order has been established, the payroll department must complete the next step before going further in the processing.
  
  
• Is there enough money? With one or more garnishments, the employee may not make enough money to take all the deductions required. Since garnishments are deducted from disposable or net pay (depending on the type of garnishment) and not gross wages, it is possible for the payroll department to “run out of money before running out of garnishments”. The payroll department needs to determine if all of the required amounts can be deducted. If they cannot, then the payroll department needs to communicate this to the issuing party or parties.
  
  
• Set it up on the payroll system. Finally the payroll department can set up the deduction on the payroll system.
  
  
• Set it up in the payroll files. After processing into the payroll system, the department needs to set up a file for the garnishment while it is active or to store for record retention when satisfied or become inactive. Garnishments should not be filed in one big file but each garnishment for each employee should have its own separate manila folder with the employee name, I.D. number and garnishment type on the outside of the folder. Garnishments should be kept in a separate file drawer than all other payroll information and should never be kept in the employee's personnel or main payroll file. Although there is no "federal law" or "state law" that prohibits an employer from making a garnishment known outside of the payroll department, there are strict laws and court cases that prohibit an employee from being “disciplined” for having a garnishment. And the only efficient way to prove that the employee never received any "discipline" for having the garnishment is to not let anybody other than payroll know of the existence of the garnishment. This includes human resources. If payroll and human resources are common departments extra care needs to be taken in this area.

Paying It…

The payroll department handles different types of garnishments and each could have a different payment due date. Even the same type of garnishment, such as child support, could have different due dates depending on which state has jurisdiction. To make sure that all garnishments are paid on time and to be efficient, the payroll department needs to establish one regular, set pay date for garnishments for each payroll. Since the laws could require the payroll deduction to be due anytime from payday to a month later, depending on the garnishment, the best idea is to pick the strictest pay requirement and make that the due date. Since there could be a chance that a child support payment may be due on the date the employee is paid that is the best day to choose for making garnishment payments.

The payroll department should process the payments for garnishments so that the checks will be available for mailing on payday or before. If making electronic payments, these should be scheduled to be transmitted on payday or before as well.

The most efficient method for producing garnishment payment checks is to request third party checks through the payroll system. This keeps everything within the confines of the payroll department. But many payroll departments do not have this option with their system so they need to request the check through accounts payable. This is normally not a problem except that the accounts payable files are not usually as secure as the payroll department’s. To avoid having other department supervisors or anyone else from having garnishment information, it is best to submit check requests a little different for garnishment checks than for other checks. These requests should:

• Any garnishments going to the same payee should be requested on the same check if the receiving agency allows it. This prevents any one amount from being traceable. Example: all IRS deductions should be on one check.
  
  
• All check requests should be submitted without any identifying information on it other than what is absolutely necessary. Example: The name of the payee such as the IRS should be listed, the amount should be listed, but under "reason for check" it should simply say "garnishment deductions and the payroll date." The names of the employees involved should not be listed nor their amounts. This information should be added to the check stub after the check is returned to the payroll department for mail out if a list is not produced to be included with the check. In addition, no backup should be attached to the check request copy that is processed by accounts payable. Of course, the proof of the deductions needs to be attached to the check request for approval but this can be transferred back to the payroll copy after signing. This keeps the information secure within the payroll department. To satisfy any internal or external audits etc. one more item can be added to the check request, "For backup, see the payroll department."

Got More Than One…

It is possible and quite common to have more than one garnishment for one employee. In fact, an employee could have several of one type of garnishment. It is the responsibility of the payroll department to determine the amount of each deduction if the employee has multiple garnishments according to the limits established in the rules and regulations and according to the priority order. Example: Under the regulations an employer may only deduct 50% of disposable pay for child support. The payroll department must be sure to follow the rules for disposable pay then take up to 50% to satisfy the garnishment. If the employee then has 2 child support garnishments, the rules remain the same. The amount to deduct increases but not the amount the deduction may be taken from. So it is possible that the payroll department may not be able to take the full amount of a garnishment. If this happens, the payroll department must follow the rules for making the deductions. These regulations can be found in Consumer Credit Protection Act and in each state’s statutes.

However, any time a garnishment check is mailed out that is less than the amount stated on the garnishment a letter of explanation should accompany the check. This will prevent any misunderstandings on the receiving party’s side as to why the full amount was not paid. This is also why it is important for payroll to mail all garnishment checks, to ensure this last step is carried out. If the payment is made via EFT and is less than the stated amount, a letter should also be sent to explain the short payment and reference the EFT payment. This, of course, would have to be done separately. The best way to process these letters is to create templates in advance to use when the need arises so that payroll is not losing valuable time during a hectic period such as payday trying to compose a letter.

In conclusion, processing garnishments is challenging and labor intensive to be sure. But by taking the time to follow the proper steps each time a garnishment is process through the payroll department will help to keep the company in compliance and will continue the lines of communication throughout the life of the garnishment.

VICKI M. LAMBERT is a certified payroll professional with over 25 years of multi-state payroll experience. She has authored many nationally distributed works such as The Complete Guide to Federal and State Payroll Compliance and The Complete Guide to Federal and State Wage and Hour Compliance published by IOMA, and Payroll: A Guide to Running an Efficient Department, published by John Wiley & Sons Inc.