Is your business ready for the resurgence of federal student loan collections and garnishments requests that come with them? With loan repayments officially resuming, it’s crucial for employers to understand their responsibilities to stay compliant, support employees, and maintain a harmonious workplace.
Background
The CARES Act, enacted in March 2020 in response to the COVID-19 pandemic, temporarily paused collections on defaulted federal student loans, including wage garnishments and tax refund offsets. Fast-forward to May 5, 2025, when the U.S. Department of Education resumed collection efforts. This marks a critical juncture for borrowers and employers, who must now prepare a garnishment process.
What Employers Need to Know About Garnishments
What Are Payroll Garnishments?
Payroll garnishments occur when an employer is legally required to withhold a portion of an employee’s wages and remit it to a third party, such as a government agency or creditor, to pay off a debt. A garnishment order can apply to debts like student loans, taxes, child support, and credit debt.
While garnishments tied to private creditors typically require a court order, federal agencies like the U.S. Department of Education can initiate garnishments without one.
The percentage of disposable earnings subject to a garnishment depends on the type of debt. For example:
- Up to 15% for student loans
50% or more for child support arrears
Employer Responsibilities
Employers are legally mandated to:
- Notify Employees: Inform them of a garnishment and provide detailed instructions for disputing the order.
- Withhold Wages: Calculate and deduct the appropriate amount as outlined in a garnishment order.
- Distribute Garnished Amounts: Forward the withheld sum to the designated creditor or agency.
- Answer Queries: Respond promptly and accurately to a garnishment notice to avoid penalties.
Failure to comply can lead to:
- Fines and penalties
- Legal action
- Employer liability for the employee’s outstanding debt
Dismissal or discrimination against employees due to garnishments is prohibited under federal law.
How Garnishments Affect Employees and Employers
For Employees
Garnishments directly impact take-home pay, leaving employees with reduced funds to cover basic living expenses. This can heighten financial stress and strain employees’ emotional well-being, potentially affecting workplace performance. Additionally, loan defaults can harm credit scores, making it challenging for employees to access future credit.
For Employers
Mishandling a garnishment order not only invites legal and financial risks but may also disrupt workplace morale. Employers proactively supporting their staff during these challenges can foster loyalty, trust, and a stronger sense of community.
Action Steps to Prepare for Student Loan Garnishments
To effectively manage garnishments, consider implementing these strategies:
Educate Yourself on Garnishments and Related Regulations
Stay up to date on state and federal laws related to garnishments to ensure compliance. Familiarize yourself with specific rules for different types of debt.
Communicate With Employees
Establish clear communication around how your organization handles garnishments and assure employees that these matters will be handled discreetly. Provide resources to help them understand their options, such as rehabilitation programs or repayment strategies.
Offer Financial Wellness Programs
Help alleviate financial stress by providing access to initiatives like:
- Budgeting workshops
- Debt management seminars
- One-on-one financial counseling
Partner With Trusted Payroll Advisors
Work with payroll experts or human capital management firms to streamline the processing of garnishments. Trusted advisors ensure timely and accurate compliance with a garnishment order, mitigating risks to your organization.
Maintain Confidentiality
Always handle a garnishment discussion and process with respect and discretion to protect the employee’s privacy, avoiding undue embarrassment or stigma.
Leverage Tax-Free Student Loan Assistance
Until December 31, 2025, employers can take advantage of educational assistance programs to contribute to employees’ student loan repayments, tax-free. Contributions up to $5,250 per year are excluded from federal income, Social Security, Medicare, and FUTA taxes. This initiative is a win-win, benefiting employees while offering tax advantages for your business.
Turning Compliance Into Opportunity
While garnishments may seem like a challenge, they also present opportunities to show your commitment to employee wellbeing. Employers who proactively address garnishments and offer support can strengthen workforce morale and loyalty.
By integrating financial wellness initiatives and leveraging programs like tax-free educational assistance, you can help employees regain financial footing while boosting your organization’s reputation as an employer of choice.
Need Support With Payroll Garnishments?
CBIZ offers dedicated assistance in navigating the intricacies of payroll garnishments and compliance. Trusted by over 135,000 clients, we deliver solutions that ease administrative burdens and keep your business ahead of compliance requirements.
Talk to a CBIZ professional today and discover how we can turn challenges into growth opportunities.
For more details on student loans and garnishments regulations, visit StudentAid.gov.
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