Are any of your workers subject to wage garnishments?
The Department of Labor’s Wage and Hour Division (WHD) has revised and clarified its guidance on the meaning of earnings under the Consumer Credit Protection Act (CCPA). The expanded list includes:
- Lump sum payments: Previously, the department said payments must be periodic to be covered earnings.
- Cash wages paid directly to employees and the amount of the tip credit claimed by the employer (previously, the division said that tips are gratuities, not compensation).
The revisions are contained in Fact Sheet #30: The Federal Wage Garnishment Law, Consumer Credit Protection Act’s Title III (CCPA).
Other forms of compensation defined as earnings under the law include:
- Wages,
- Salaries,
- Commissions,
- Bonuses, and
- Other compensation, such as periodic payments from a pension or retirement program or payments from an employment-based disability payment program.
Crucial Definition
The federal definition of earnings is critical because if the funds aren’t CCPA-protected earnings, states can decide whether to garnish those funds and how much, if any, of those funds to protect from garnishment.
A wage garnishment is any legal or equitable procedure through which a portion of a person’s earnings must be withheld for the payment of a debt. Most garnishments are made by court order.
Other types of legal or equitable procedures for garnishment include IRS or state tax collection agency levies for unpaid taxes and federal agency administrative garnishments for nontax debts owed the federal government.
Title III of the CCPA prevents employers from firing workers because their wages have been garnished for any one debt and limits the amount of an employee’s earnings that may be garnished in a week. The protection doesn’t apply if the earnings are being garnished for a second or subsequent debt.
Garnishment Limit
In addition, Title III limits the amount of earnings that may be garnished in any workweek or pay period to the lesser of:
- 25% of disposable earnings, or
- The amount by which disposable earnings are greater than 30 times the federal minimum hourly wage, which currently is $7.25 under the Fair Labor Standards Act.
In no event can the amount of an individual’s disposable earnings that may be garnished exceed the percentages specified in the CCPA. Garnishment limits don’t apply to certain bankruptcy court orders or to voluntary wage assignments where workers voluntarily agree that their employers may turn over a specified amount of their earnings to creditors.
States have their own garnishment laws (see box below). When state and federal garnishment regulations differ, employers must observe the law that calls for the smaller garnishment or prohibits the discharge of an employee when earnings have been subject to garnishment for more than one debt.
Questions over issues other than the amount being garnished or termination must be referred to the court or agency initiating the action. For example, the CCPA contains no provisions controlling the priorities of garnishments, which are determined by state or other federal laws.
Child Support and Alimony
Under court orders for child support or alimony, the garnishment law allows up to 50% of an employee’s disposable earnings, and sometimes up to 60% depending on the situation. An extra 5% may be garnished for support payments that are more than 12 weeks in arrears.
Violations of Title III may result in:
- The reinstatement of a discharged employee,
- Payment of back wages,
- Restoration of improperly garnished amounts, and
- Criminal prosecution, fines and prison terms if the violations are willful.
The fact sheet provides several detailed examples on computing the amount subject to garnishment. Among them:
- An employee receives a bonus one week of $402. After deductions required by law, the disposable earnings are $368. In this week, 25% of the disposable earnings may be garnished. ($368 times 25% = $92).
- An employee paid every other week has disposable earnings of $500 for the first week and $80 for the second week, for a total of $580. In a biweekly pay period, when disposable earnings are at or above $580 for the period, 25% may be garnished. In this example, $145 can be taken (25% times $580). It doesn’t matter that the disposable earnings in the second week are less than $217.50.
- Under a garnishment order (with priority) for child support, an employer withholds $90 a week from the wages of an employee who has disposable earnings of $295 a week. A garnishment order for the collection of a defaulted student loan is also served on the employer.
If there was no garnishment order (with priority) for child support, Title III’s general limitations would apply to the garnishment for the defaulted student loan, and a maximum of $73.75 (25% times $295) would be garnished each week. However, the existing garnishment for child support means in this example that no additional garnishment for the defaulted student loan may be made. That’s because the amount already garnished is more than the 25% that may be generally garnished. Additional amounts could be garnished to collect child support, delinquent federal or state taxes, or certain bankruptcy court ordered payments.
States Weigh In On Law to Promote Uniformity
The Uniform Law Commission last year wrapped up three years of work by finalizing the Uniform Wage Garnishment Act (UWGA). The UWGA is aimed at helping put employers one step closer to having a standardized approach for processing wage garnishments across states.
The UWGA streamlines the garnishment process and ensures nationwide consistency. It’s also intended to cut costs for employers.
The law must still be adopted by state legislatures before becoming effective. So far Nebraska has introduced legislation to adopt the measure and others are expected to follow.
The commission is a 125-year-old organization that drafts legislation to improve commerce between the states. The panel is comprised of commissioners of the 50 states, Puerto Rico and the Virgin Islands.
