Implementing an income withholding order, or IWO, relies on a coordinated effort by human resource and payroll departments. When employees see the effects of these involuntary deductions, they often have a lot of questions that can be answered by those who have a full understanding of employer and employee responsibilities.  

While garnishments compel individuals to pay their debts, the financial liability falls to employers to collect and remit wages. Any order that isn’t followed to the letter could result in penalties equal to the accumulated required deductions plus possible fines and interest to be paid by employers.  

It all starts during employee onboarding, when new hire reporting is submitted to the state  and triggers any outstanding IWOs to be issued to the current employer. 

If multiple orders are received, it’s important to understand which takes priority. Each garnishment has a predetermined priority — kind of like the rock, paper and scissors game. Tax levy beats child support if received first. Bankruptcy always wins over a tax levy, but loses to a child support order.  

There’s a limit to the wages that can be garnished based on cost of living. If there are multiple orders, one or more of them might not be fulfilled, and you could receive a notice from the garnishing agency. To address these questions, the payroll department could have to prove the maximum amount that can be deducted has been exceeded.  

Colorado requires the prorate method for remittance on multiple IWOs, meaning qualifying wages should be allocated to each order based on its percentage in relation to the total amount required to be withheld.

IWOs are sent via the United States Postal Service and include two copies, one of which must be given directly to the employee. Each order will specify the necessary calculations, limits and remittance details. It’s important to read each IWO in full to understand it’s unique requirements.

Qualified wages are based on a minimum disposable earnings or take home wages. They can be different.  Disposable earnings are net pay after all deductions required by law are subtracted from gross pay. Deductions required by law refer only to other garnishments and federal, state or local taxes. Take home pay is more generous to the employee and disqualifies pre-existing, voluntary deductions that an employee had from wages that can be garnished.  If, for example, an employee opted into benefits provided and has a medical insurance premium deduction of $50 per pay, then the $50 is not part of qualified wages for garnishments based on take home wages, but is considered qualified wages for garnishments based on disposable earnings.  

Since garnishments can require a significant amount of time to administer, employers have regulated ability to pass fees along to the employee. Refer to state laws to verify the amount that can be applied. In Colorado, the administration fee for child support orders is limited to $5 per month per employee — not per order.  

Some other facts to consider:

Some orders, such as creditor or student loan garnishment, could provide a total amount due at the time the IWO is issued, but the debt continues to incur interest charges. For this reason, you can’t stop withholding and remitting wages until a release order is received.  

Federal, state and local tax levies are calculated based on take home wages. Most other garnishments base qualified wages on disposable earnings.  

Bankruptcy orders are issued by a trustee that has consolidated outstanding debt for the employee into a single garnishment. All other orders, expect for child support orders, should be terminated when a bankruptcy order is applied to wages.  

Child support orders have a high priority, and the state must review and issue updates every three years.   

Any change or secession should only be made when an IWO amendment is received. An employee can contest garnishments through the courts or issuing agency.