Garnishment payable refers to the amount of money that an employer is legally required to withhold from an employee’s wages due to a garnishment order.
When a court orders a wage garnishment, it directs an employer to deduct a specific amount or percentage from an employee’s wages and remit it to a creditor. The amount to be garnished becomes a liability for the employer, as it’s money that legally belongs to the creditor, not to the employer. This liability is often recorded on the employer’s books as “garnishment payable” until it’s sent to the creditor.
For example, if an employee has a garnishment for a $2,000 debt, and $200 is deducted from the employee’s wages each pay period, the employer would record a $200 garnishment payable each pay period. Once the employer remits the $200 to the creditor, the garnishment payable is reduced by the same amount.
It’s important to note that garnishments are legal obligations. An employer who fails to comply with a garnishment order could potentially be held responsible for the debt.
The process and rules for wage garnishments can vary depending on local laws and the type of debt involved, so it’s always a good idea to consult with a legal professional when dealing with garnishments.
Example of a Garnishment Payable
Suppose we have an employee named Jane who has fallen behind on her credit card payments. After unsuccessfully trying to collect the debt, the credit card company sues Jane and wins a court judgment. The court then issues a wage garnishment order directing Jane’s employer to withhold a portion of her wages to pay the debt.
Jane earns $4,000 a month in net wages, and the garnishment order requires her employer to withhold 25% of her disposable earnings. This comes out to $1,000 each month.
When Jane’s employer receives the garnishment order, they will begin withholding $1,000 from Jane’s wages each month. From an accounting perspective, when Jane’s employer processes payroll, they will credit (decrease) Wages Expense for $4,000, debit (increase) Cash for $3,000, and debit (increase) Garnishment Payable for $1,000.
At this point, Jane’s employer owes $1,000 to the credit card company. This liability is recorded on the balance sheet as a Garnishment Payable. Once the employer remits the $1,000 to the credit card company, they will debit (decrease) Garnishment Payable and credit (decrease) Cash.
This process will continue each month until the debt is fully paid. Remember, this is a simplified example, and the actual process can vary based on local laws, the type of debt, and other factors.