When a company becomes collection agent
By Jenny C. McCune • Bankrate.com

If it takes two to tango, it takes both an employer and employee to do the garnishment dance. And it's a debtor's dance with specific steps.

The business owner is often an unenthusiastic partner when it comes to dancing to the tune of a garnishment order. The process can be especially uncomfortable in a small company, where the boss and workers may be friends as well as colleagues. But a personal relationship offers no exception. An owner can't decline to garnish an employee's wages.

"An employer must follow the law and do the withholding," says Hillary Arrow Booth, partner with Gardner & Booth, a Los Angeles law firm.

That's because if the worker doesn't pay, your company may.

Legally, a company that fails to execute on a garnishment order could be forced to pay the debt if it fails to collect from an owing employee's paycheck, says Eva Rosenberg, the Internet's Tax Mama.

Delivering the bad news
The first inkling a business gets regarding garnishment comes in the form of a court order or other legal document. These documents are very detailed, says Booth, and explain precisely what the company has to do, including how much notice must be given to the worker and the amount to be garnished per paycheck or pay period.

In addition to handling the administrative chores, the small business has the difficult task of telling the owing worker that his or her paycheck soon will be smaller.

Think you can help your beleaguered employee by firing him as a way to circumvent the process? Rather drastic, but no wages mean nothing to garner.

That approach is not unheard of, according to Rosenberg. Companies have been known to fire employees threatened with garnishment of wages, she says, only to rehire them as independent contractors. That may or may not work. Whether it does is almost beside the point. It's dishonest and unethical.

Or maybe you want to fire the employee because you don't want a child-support slacker or a tax protester on your payroll. Don't do it. Federal labor law specifies that you must comply with the garnishment and you can't fire the employee.

"You can't fire in retaliation because someone is getting their wages garnished," Booth says. "Employers have to take the responsibility to withhold money from the employee's paycheck."

Excess offers escape
A habitual debtor, however, does offer an escape route for the employer.

Garnishment guidelines say you can fire an employee if he or she ends up with several garnishments against pay. So if your employee has been busily racking up debt and subsequent garnishment orders, then you have the right to dismiss.

But for the occasional garnishment, you and your company's bookkeeper simply must become de facto debt collection agents. If one of your employees reneges on a debt, be it alimony or taxes, your business is going to be caught in the middle. You have little choice but to comply.

Jenny C. McCune is a contributing editor based in Montana.

-- Posted: Sept. 10, 2002