According to a report developed by payroll processor ADP, approximately 7.2 percent of employees have had their wages garnished at some point. Although your employee is the one with the money troubles, you will be responsible for collecting the cash from the person's paycheck and sending it in to satisfy the debt if you are served with a writ of garnishment from a creditor. Failing to do so can cost you big. Here's what you need to know about the consequences of mishandling a wage garnishment and some options for mitigating those consequences if they befall you.

Penalties for Mishandling Wage Garnishment

A wage garnishment is a legal action taken against a debtor. Although you are only the middleman in this transaction, the law requires you to take certain actions to assist the creditor in obtaining the money owed to them. In addition to withholding a portion of the employee's paycheck (typically 25%, but it can be more), you'll have to file responses to the garnishment with the court. For instance, in Michigan, you must file a garnishment disclosure listing information about the money you give the employee with the court within 14 days after receiving the garnishment notice.

Failure to comply with the legal requirements related to wage garnishments can result in you becoming legally liable for paying the person's debt in full, even if the person doesn't currently work for your company or never worked for you at all. This means the creditor can obtain a default judgment against you and grab the money owed from your business bank account. Additionally, the employee may have a viable personal injury case against you if the individual is injured in some way by your actions (e.g. you take more money than is required and the person loses housing).

Is It Possible to Get Your Money Back?

If your failure to handle a wage garnishment correctly leads to a creditor taking your money to pay an employee's debt, your first thought will be whether or not there is a way to get your money back. This depends on where you live and the circumstances of the case. In some states, such as Georgia, you can counter the default judgment by filing a late response to the garnishment request.

In most states, though, you'll have to file a lawsuit against the creditor to get the money back, and you'll have to prove there was some kind of defect in the way the case was handled that rendered the garnishment invalid. For instance, the creditor may be forced to repay the funds taken if you can prove the creditor committed fraud or the notice of garnishment was improperly served (e.g. not sent to you within the required time frame).

You may be able to collect the money from the employee if you can prove the person contributed to the loss. For instance, if the employee hid the notice of garnishment from you, then he or she could be held liable for your loss.

If you've been hit with a default judgment for failing to comply with a wage garnishment notice or an employee has file suit against you for mishandling a garnishment action, contact an attorney in your area for assistance. For more information, contact a firm such as Geoffrey S. Gulinson & Associates PC.