Garnishment is a process that is extremely associated with the payroll accounting. In this process, the employer holds the wages of the employee by the order of a court. Then the employer remits this money to the person or agency, which the court specifies explicitly. This process of withholding and remittance by the order of a court is known as wage garnishment.
In payroll accounting, the wages of an employee are withheld for the purposes other than payroll taxes. This other withholding process is garnishment, which is carried out by the orders of the court. The court can order the employer to garnish an employee’s wages or salary for any purpose from repaying a debt to paying child support. In legal terminology, the word garnish is referred to withholding the money of a specific party.
Accounting for employer:
When the employer holds the wage or salary of the employee for garnishment purpose, he or she reports it properly in the accounts of the company. The employer usually discloses this amount as a current liability in the balance sheet. When the employer has remitted this amount to the party specified by the court, he or she can reduce the current liability in the balance sheet.
Usually, the administration fees employer incurs in the process of garnishment is not paid to the employer as the employer is carrying out the orders of the court. However, if the claim is made or the court itself orders it, the employer can deduct a small fee as administration expenses from the earnings of the employee. This order for the employer fee can be either a direct one or an implied order. For example, the court can order the employer to an employer to remit $200 from the employee’s earnings and forward $190 of them to the third party. Then, the difference of $10 will be a fee paid to the employer for the administration expenses incurred. The employer is allowed to show this amount in the business’s account, and it can be shown as miscellaneous revenue.
The process of wage garnishment can affect the reputation of the employee as a defaulter, and it would make it difficult for the employee to take out loans or open a bank account.
- Debt ratios
- Liquidity ratios
- Profitability ratios
- Asset management ratios
- Cash Flow Indicator Ratios
- Market value ratios
- Financial analysis
- Business Terms
- Financial education
- International Financial Reporting Standards (EU)
- IFRS Interpretations (EU)
- Financial software
Most WantedFinancial Terms
- Most Important Financial Ratios
- Debt-to-Equity Ratio
- Financial Leverage
- Current Ratio
- Interest Coverage Ratio (ICR)
- Solvency Ratio
- Receivable Turnover Ratio
- Return On Capital Employed (ROCE)
- Debt Service Coverage Ratio
- Accounts Payable Turnover Ratio
Have 10 minutes to relax?Play our unique
Play The Game