Can Per Diem Be Considered for Wage Garnishment?

by Tracey Sandilands; Updated September 26, 2017
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Receiving an order to garnish an employee’s wages can be an unpleasant experience for a small business owner, and the requirements of the order could be confusing. The employer is required to withhold a percentage of the employee’s wages for payment, and he cannot refuse the order. While some states do not permit garnishments, others allow it only for unpaid taxes, child support, student loans and court fines.

Definition of a Per Diem

The term “per diem” means “per day” and is viewed in various ways by employers. A true per diem in legal terms is a reimbursement for expenses incurred by the employee and is usually intended to cover food, transportation and other daily costs of doing business. Per diems are usually paid in advance, however, and receipts are not required for the expenditure. In this context, it is not part of disposable income and therefore cannot be considered for wage garnishment.

Other Per Diems

Some companies give employees an additional daily allowance based on their salary and call it a per diem, and this would be considered part of the employee’s disposable income and subject to garnishment. This is usually added to the employee’s paycheck at month end. Reasons for doing this are the employer saves money on payments such as workers’ compensation, unemployment insurance and Social Security, as the per diem does not have to be declared as disposable income and therefore the wages paid to employees appear lower than they are. The trucking industry in particular provides workers “per diems” based on IRS guidelines, whether they are used or not.

Eligibility for Wage Garnishment

Provided the daily incentive type of per diem is not included in payroll, the recipient is not required to pay tax on it and it cannot be considered for wage garnishment. However, if it is included with payroll, then it can be taken into account for garnishment, although the employer may still be scoring the benefit of calling it a per diem.

Bad for Employees

Per diems may be extra money in the pockets of employees that is not taxable and cannot be considered for garnishment, but the downside is that if an employee claims unemployment insurance or workers’ compensation, he will only be paid benefits based on the declared amount of disposable income, not on the full amount he has been earning. In addition, if the employee applies for credit or a mortgage, the lender will only take account of taxable income, which will result in the employee qualifying for a lower amount.

About the Author

Tracey Sandilands has written professionally since 1990, covering business, home ownership and pets. She holds a professional business management qualification, a bachelor's degree in communications and a diploma in public relations and journalism. Sandilands is the former editor of an international property news portal and an experienced dog breeder and trainer.

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