Earnings Withholding Order

What Is an Earnings Withholding Order?

An earnings withholding order is a court order issued by a judge that instructs an employer to garnish wages from one of their employees. These notices are issued when creditors have succeeded in obtaining a legal judgment against a debtor, who in this case is the employee.

The order effectively instructs a third party to deduct payments directly from a debtor’s paycheck or bank account in order to satisfy a ruling.

How Earnings Withholding Orders Work

Default risk is an inescapable component of lending. After all, there can never be any guarantee that a borrower will repay their debts in a complete or timely manner. In the case of consumer lending, borrowers can avoid paying their debts by taking actions such as changing their address or bank information, relocating to a different state, or simply refusing to respond to a creditors’ communications.

This risk is especially pronounced when the debt in question is not collateralized, leaving the creditor with limited options to enforce repayment.

In order to obtain repayment of outstanding debt, a court can allow creditors to seize funds directly from the debtor’s wages or bank account. To do so, a creditor must present their case in front of a judge and obtain a legal judgment against the borrower. If they are successful in their case, the court can send an earnings withholding order to the borrower’s employer, informing them that they are legally obligated to deduct a specified sum from the borrower’s paycheck and forward it on to a specified levying officer. The debtor's employer must then act on the court’s behalf by deducting the funds from the employee’s paycheck and forwarding them to a third party known as the levying officer.

Unless the unpaid debt in question is particularly small, the earnings withholding order will likely specify an ongoing series of payments to be garnished gradually from the employee’s regular income stream. This legal document will also include various details necessary to establish the legality of the order as well as the specific instructions for its implementation. These include:

Real-World Example of an Earnings Withholding Order

In California, state laws dictate that the percentage of an employee’s wages that can be garnished must depend on that employee’s disposable income. In this context, “disposable income” is defined as what remains after deducting federal and state income taxes from their salary, as well as social security and state disability taxes.

Importantly, other fixed costs, such as healthcare premiums or court-ordered spousal or child support payments, are not subtracted before determining disposable income.

In addition to disposable income amounts, the formula used in California is based on a number of other factors, including the size of a company, the number of pay periods, and the average minimum wage for a given area.

By way of example, as of Jan. 1, 2019, if a creditor is seeking wage garnishment for someone who is employed at a California company with fewer than 26 employees, is paid monthly, works in an area where the statewide minimum wage of $11 per hour is in effect, and has a disposable monthly income of between $1,906,67 and $3,813.34, a maximum of 50% of the amount over $1,906.67 ($953.34) may be withheld. A chart depicting other permutations of the criteria is available on the California Court System's website.