Garnishing wages no simple task

Employers can be on hook for employee’s debt if proper procedures not followed

If there is a debt owing, the courts or a government agency can issue a legal order to garnish an individual’s wages to pay the debt. When an employer is served with such an order, it is important to have procedures in place to enforce the order or the organization could face fines and penalties up to and including the full amount of the balance of the debt.

Employers are legally bound to enforce orders to garnish an employee’s wages. When court and government orders are served, organizations must begin withholding the specified amount or percentage and remit it to the court or government agency.

The following are recommendations and best practices to develop a process for dealing with legal orders:

Maintain a log to record each order received

The log should include the employee’s name, date the order is received, due date and expiry (if applicable), reference or case number and payments issued.

If legal orders are rare in an organization, a logbook may not be necessary, however, employers should formally document the information.

Execute order quickly and efficiently

Once court and government orders are served, employers are legally obligated to begin withholding and remitting the specified amount or percentage from the employee’s wages — generally with the pay immediately following receipt of the order. While employee permission is not required to garnish wages, as a courtesy, many employers advise the individual concerned when an order has been received.

Check the percentage or amount of pay to be withheld from the employee’s wages, usually 30 per cent of wages, and any termination clauses. If the order is unclear, it is the employer’s responsibility to contact the respective court or government agency for clarification. Ensure all information is received in writing.

In most situations, provincial or federal legislation specifies either a percentage of the employee’s wages or a minimum amount that cannot be garnisheed. Check the relevant legislation or consult with legal counsel.

If there are no wages owing to the employee for a given period or if her services are terminated, inform the court or government agency immediately.

Know human rights and privacy legislation

In most provinces, it is an offence to dismiss an employee because of an order of garnishment. To ensure the order does not negatively impact her employment, confidentiality is essential. Consider keeping records in a file separate from personnel or payroll records.

When an employer receives an order, it must determine whether the order is ongoing and if there are other orders for the same period against the employee. The employer might also need to find out her marital status and dependants. However, limit the collection of personal information to only what is necessary.

Correctly calculate garnishment amount

Unless the order provides clear instructions on the calculation of the garnishment and there are no other orders against the employee, contact the court, government agency or lawyer for clarification. Ensure this information is received in writing.

If the employee’s regular pay is not large enough, one or more voluntary deductions must be suspended. Confirm with the employee which deductions are to be suspended.

If an employer receives multiple orders for one employee, it should contact each court or government agency immediately to explain the situation. The court, government agency or legal counsel will also help determine priority.

Produce payments

One payment needs to be made to the court or government agency for the garnishment amount and one to the employee for the remainder of her pay.

On the court payment, indicate the reference or case number for the order. Some jurisdictions require detailed information be submitted with each payment, while others supply a worksheet to be submitted. Contact the court or government agency or consult with legal counsel to determine what is necessary.

Only discuss orders with authorized parties

Be mindful of privacy laws. Only share information with the authorized court or government agency and limit the information disclosed to only what is necessary.

For example, most family support and maintenance enforcement acts permit the court to request personal information, such as her address, social insurance number and financial records. However, a lawyer or parent involved with a child support order is not authorized to access such information. Refer unauthorized inquiries to the respective court or family support and maintenance office. If in doubt, consult with legal counsel.

Release from collection obligations

Employers are legally bound to enforce orders to garnish an employee’s wages. It is not sufficient to have the employee stating a settlement has been reached or payment has been made. An employer must continue the deductions until the liability is paid, a specified expiry date arrives or the court or government agency sends a written notice to stop.

If the garnishment is ongoing and an employee begins receiving a pension, contact the court or government agency to determine whether to discontinue the garnishment. If the employee declares bankruptcy, verify with the court or government agency whether to stop the garnishment. Some jurisdictions state family support and maintenance payments cannot be part of a bankruptcy.

Steven Van Alstine is vice-president of compliance programs and services at the Canadian Payroll Association. He can be reached at [email protected].

Orders to pay

Types of legal orders

Requirements to pay

The Canada Revenue Agency (CRA) issues “requirements to pay” to collect unpaid income taxes or other amounts owed related to employment insurance or the Canada Pension Plan. The percentage is usually about 30 per cent of an employee’s gross or net wages.

In Quebec, equivalent orders are issued by the Ministère du Revenu du Québec.

Third-party demands

The CRA issues “third-party demands” to collect amounts owing under programs delivered by Service Canada, including debts incurred though Canada student loans, employment programs and Old Age Security. The percentage is usually about 30 per cent of an employee’s gross or net wages.

Family support and maintenance

Federal and provincial courts issue family support and maintenance orders to compel individuals to pay child or spousal support, including arrears. The provinces are primarily responsible for enforcement, with support from the federal government.

These orders usually require an employer to deduct and remit payments on an ongoing basis. The payment is generally a fixed monthly amount, with additional deductions required for payments in arrears, as required.

Provincial court garnishments

If an individual owes a personal debt, the creditor can obtain a judgment from a provincial court to garnish her wages to recover the amount. The provincial garnishment order assigns legal responsibilities to the individual’s employer to withhold a specified amount or percentage from her wages and remit it to the court.

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