Managing Canadian Payroll Garnishments
Our support team here at Avanti often fields calls about managing garnishees. They found this great article on garnishees from the Canadian Payroll Association (CPA) which provides a high level overview on this complex task. For even more in-depth knowledge, we invite you to take part in the Canadian Payroll Association’s series on Managing Garnishments. Click here for more information.
Avanti is a proud supporter of the CPA.
Dealing with garnishments can be quite complex for payroll professionals, from understanding the employer’s legal obligations, to determining what payments are subject to garnishment and how much can be withheld, often while dealing with a disgruntled employee when you apply the deduction.
There are typically three types of orders an employer may encounter, in order of priority they are:
- Orders from Canada Revenue Agency (CRA) or Revenu Québec (RQ)
- for outstanding taxes
- recovery of overpayments from social benefits (C/QPP, EI or QPIP)
- Family maintenance orders
- Court orders
It is important for Payroll professionals to understand that these are legal orders that require your immediate attention. Failure to comply with an order can place the organization in a position of having to pay a personal debt on behalf of the employee. Garnishment orders can be received for both employees on your Payroll as well as independent contractors you may be paying through accounts payable. In either case, as an income source you are required to comply with the order.
If the organization is not currently an income source for the debtor, you should notify the issuer of the garnishment immediately, in writing. This would include situations where an employee is on an unpaid leave of absence, has terminated employment, or when an independent contractor has ended their contract with you.
Establishing a set of procedures, or a checklist, helps ensure that legal orders are handled correctly in a manner that reduces the organization’s risk for non-compliance. You should include the following actions:
- Record the date the order is received
- Note the due date and/or expiry date of the order
- Notify the employee confidentially that the order has been received
- Review the employee’s file to see if any other legal orders are currently in place
- If other orders are in place determine priority between the existing and the new order
- Determine garnishable wages
- Calculate the garnishment deduction
- Determine if an administration fee may be applied
- If wages are insufficient to satisfy the order notify the issuer immediately, in writing
- Set up the payroll deduction and begin withholding
- Maintain a payment log or establish a goal limit for the deduction to ensure it stops once the order is satisfied
- Remit the payment on or before the required due date
- If employment terminates, review the order for special rules on termination
Notifying the Employee
Upon receipt of the garnish order, notify the employee immediately and provide them with your payroll cut-off date. The employee may dispute the garnishment, or indicate they have already paid it in full. In these situations let the employee know you are legally obligated to follow the order received until such time as you receive written notification that the order is cancelled. If an order to cancel the garnishment is received after your pay run, but before you have remitted payment you can refund the employee.
As with all matters related to payroll, special care must be taken with garnishments to protect an employee’s right to privacy. If you receive telephone calls or correspondence from a law firm representing the plaintiff that is attempting to obtain a garnishment order against one of your employees, do not provide any personal information without the employee’s consent. While it is perfectly fine to provide or confirm a mailing address to ensure a garnishment order finds its way to the payroll department, under no circumstances should you discuss an employee’s rate of pay, bank account details or personal mailing address with an unknown third party.
Internally handling garnishment orders must be limited to only those individuals that administer payment of wages and remit payments to third parties. Do not discuss the garnishment order with anyone other than the employee.
Handling Multiple Orders
Upon receipt of a garnishment order you should check the employee’s payroll file to determine if another order is already in place. In situations where multiple orders have been received you will need to determine the maximum deduction that may be withheld, and what the priority of orders is for disbursement of the payments.
Under various pieces of legislation that govern garnishments, some portion of an employee’s pay will be exempted from garnishment. Regardless of how many orders you receive there is a limit to how much an employer can withhold for garnishment orders. Once you determine the maximum deduction and withhold it from the employee’s pay, the next step is determining how those funds will be disbursed based on the priority of the orders received.
In some cases an order of higher priority may be taking the maximum deduction permitted, leaving no garnishable wages for the lower priority order. In these situations you should notify the issuer immediately that an order of higher priority is already receiving the maximum deduction permitted.
If two orders of the same type are received, the disbursement of the maximum permitted deduction will generally be handled in one of the following ways:
- Payment of orders based on date of issue – first come first serve; or
- An allocation of the maximum deduction over the multiple orders (very common when dealing with multiple family support orders)
Employers may need to seek legal assistance when dealing with multiple orders, as both issuers may try to claim priority over each other.
Handling garnishments if employment terminates
If an employee with an active garnishment terminates employment, always check the order for any special clauses on withholding from final payments. The CRA generally requires 100% of any net payments from termination be applied to the outstanding balance on a garnishment.
When remitting your final payment for a garnishment always send along a written notification that the employee is no longer employed by the organization and the date of the last payment of wages.
Garnishable wages and exemptions
Each type of order falls under specific legislation that will indicate the types of payments subject to garnishment, as well as amounts that are exempted from garnishment. In some cases the amount that is exempt is a percentage of gross or net pay, but for some orders the exemption is based on the number of dependants for which the employee is financially responsible.
If you receive an order without instructions on how to calculate the garnishment deduction, the Canadian Payroll Association’s Payroll InfoLine is available to assist you. Expert Payroll consultants can guide you to the specific legislation that governs the type of order you have received and help you interpret the type of payments subject to garnishment and what exemptions apply.
Managing Garnishments Series from the Canadian Payroll Association
The Canadian Payroll Association hosts a three-part webinar series on Managing Garnishments. Details on the topics for each webinar and the event dates can be found at payroll.ca
The Canadian Payroll Association has kindly given us permission to reprint the garnishee article written by Tina Beauchamp.
Tina Beauchamp, CPM, is a Payroll Consultant with the Canadian Payroll Association and is one of ten subject matter experts in payroll legislation, research and training with the Compliance Services and Programs department. Tina has over 20 years of experience in payroll and has managed Canadian and U.S. payrolls for organizations in the retail and manufacturing sectors.
For even more Canadian Payroll Resources: