(Revised November 2016) (PDF)
This fact sheet provides general information concerning the limits on the amount that may be withheld from a person's earnings under the CCPA and the CCPA's protection from termination because of garnishment for any single debt
A wage garnishment is any legal or equitable procedure through which some portion of a person's earnings is required to 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 non-tax debts owed the federal government.
Wage garnishments do not include voluntary wage assignments�that is, situations in which employees voluntarily agree that their employers may turn over some specified amount of their earnings to a creditor or creditors.
Title III of the CCPA�s Limitations on Wage Garnishments
Title III of the CCPA (Title III) limits the amount of an individual's earnings that may be garnished and protects an employee from being fired if pay is garnished for only one debt. Title III is administered by the U.S. Department of Labor's Wage and Hour Division and applies in all 50 states, the District of Columbia, and all U.S. territories and possessions. Title III protects everyone who receives personal earnings.
Questions over issues other than the amount being garnished or termination should be referred to the court or agency initiating the garnishment action. For example, questions regarding the priority given to certain garnishments over others are not matters covered by Title III and may be referred to the court or agency initiating the garnishment action. The CCPA contains no provisions controlling the priorities of garnishments, which are determined by State or other Federal laws. However, in no event may the amount of any individual's disposable earnings which may be garnished exceed the percentages specified in the CCPA.
Definition of Earnings
The CCPA defines earnings as compensation for personal services, which includes:
- bonuses, or
- other compensation�including periodic payments from a pension or retirement program, or payments from an employment-based disability payment program.
Earnings may include payments received in lump sums. For employees who receive tips, the cash wages paid directly by the employer and the amount of the tip credit claimed, if any, by the employer are earnings for the purposes of the wage garnishment law. Tips received in excess of the tip credit amount or in excess of the wages paid directly by the employer (if no tip credit is claimed or allowed) are not earnings for purposes of the CCPA.
Limitations on the Amount of Earnings that may be Garnished (General)
The amount of pay subject to garnishment is based on an employee's "disposable earnings," which is the amount of earnings left after legally required deductions are made. Examples of such deductions include federal, state, and local taxes, the employee's share of Social Security, Medicare and State Unemployment Insurance tax. It also includes withholdings for employee retirement systems required by law.
Deductions not required by law�such as those for voluntary wage assignments, union dues, health and life insurance, contributions to charitable causes, purchases of savings bonds, retirement plan contributions (except those required by law) and payments to employers for payroll advances or purchases of merchandise�usually may not be subtracted from gross earnings when calculating disposable earnings under the CCPA.
Title III sets the maximum amount that may be garnished in any workweek or pay period, regardless of the number of garnishment orders received by the employer. For ordinary garnishments (i.e., those not for support, bankruptcy, or any state or federal tax), the weekly amount may not exceed the lesser of two figures: 25 percent of the employee's disposable earnings, or the amount by which an employee's disposable earnings are greater than 30 times the federal minimum wage (currently $7.25 an hour).
Therefore, if the pay period is weekly and disposable earnings are $217.50 ($7.25 � 30) or less, there can be no garnishment. If disposable earnings are more than $217.50 but less than $290 ($7.25 � 40), the amount above $217.50 can be garnished. If disposable earnings are $290 or more, a maximum of 25 percent can be garnished. When pay periods cover more than one week, multiples of the weekly restrictions must be used to calculate the maximum amounts that may be garnished. The table and examples at the end of this fact sheet illustrate these amounts.
Limitations on the Amount of Earnings that may be Garnished for Child Support and Alimony
Title III also limits that amount of earnings that may be garnished pursuant to court orders for child support or alimony. The garnishment law allows up to 50 percent of a worker's disposable earnings to be garnished for these purposes if the worker is supporting another spouse or child, or up to 60 percent if the worker is not. An additional 5 percent may be garnished for support payments more than l2 weeks in arrears.
Exceptions to Title III�s Limitation on Wage Garnishments
The wage garnishment law specifies that its limitations on the amount of earnings that may be garnished do not apply to certain bankruptcy court orders, or to debts due for federal or state taxes.
If a state wage garnishment law differs from Title III, the law resulting in the lower amount of earnings being garnished must be observed.
Non-Tax Debts Owed to Federal Agencies
The Debt Collection Improvement Act authorizes federal agencies or collection agencies under contract with them to garnish up to 15% of disposable earnings to repay defaulted debts owed the U.S. government. The Higher Education Act authorizes the Department of Education's guaranty agencies to garnish up to 10% of disposable earnings to repay defaulted federal student loans. Such withholding is also subject to the provisions of Title III of the CCPA, but not state garnishment laws. Unless the total of all garnishments exceeds 25% of disposable earnings, questions regarding such garnishments should be referred to the agency initiating the withholding action.
EXAMPLES OF AMOUNTS SUBJECT TO GARNISHMENT
The following examples illustrate the statutory tests for determining the amounts subject to garnishment, based on the current minimum wage of $7.25 per hour.
- An employee's gross earnings in a particular week are $263. After deductions required by law, the disposable earnings are $233.00. In this week $15.50 may be garnished, because only the amount over $217.50 may be garnished where the disposable earnings are less than $290.
- An employee receives a bonus in a particular workweek of $402. After deductions required by law, the disposable earnings are $368. In this week, 25 percent of the disposable earnings may be garnished. ($368 � 25% = $92).
- An employee paid every other week has disposable earnings of $500 for the first week and $80 for the second week of the pay period, for a total of $580. In a biweekly pay period, when disposable earnings are at or above $580 for the pay period, 25% may be garnished; $145.00 (25% � $580) may be garnished. It does not matter that the disposable earnings in the second week are less than $217.50.
- An employee on a $400 weekly draw against commissions has disposable earnings each week of $300. Commissions are paid monthly and result in $1,800 in disposable earnings for July after already-paid weekly draws are subtracted and deductions required by law are made. Each draw and the monthly commission payment are separately subject to the law's limitation. Thus, 25% of each week�s disposable earnings from the draw ($75 in this example) may be garnished. And 25% of the disposable earnings from the commission payment may be garnished, or $450 ($1,800 � 25% = $450).
- 5. Pursuant to a garnishment order (with priority) for child support, an employer withholds $90 per week from the wages of an employee who has disposable earnings of $295 a week. Title III allows up to 50% or 60% of disposable earnings to be garnished pursuant to court orders for child support. 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% � $295) would be garnished per week. However, the existing garnishment for child support means in this example that no additional garnishment for the defaulted student loan may be made because the amount already garnished is more than the amount (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.
MAXIMUM GARNISHMENT OF DISPOSABLE EARNINGS (GENERALLY)FOR THE $7.25 MINIMUM WAGE
$217.50 or less:
$435.00 or less:
$471.25 or less:
$942.50 or less:
More than $217.50 but less than $290.00:
Amount ABOVE $217.50
More than $435.00 but less than $580.00:
Amount ABOVE $435.00
More than $471.25 but less than $628.33: �
Amount ABOVE $471.25
More than $942.50 but less than $1,256.66:
Amount ABOVE $942.50
$290.00 or more:
$580.00 or more:
$628.33 or more:
$1,256.66 or more:
* These limitations do not apply to certain bankruptcy court orders, or to garnishments to recover debts due for state or federal taxes. Different limitations apply to garnishments pursuant to court orders for child support or alimony.
Title III Protections against Discharge when Wages are Garnished
The CCPA prohibits an employer from firing an employee whose earnings are subject to garnishment for any one debt, regardless of the number of levies made or proceedings brought to collect that one debt. The CCPA does not prohibit discharge because an employee's earnings are separately garnished for two or more debts.
Where to Obtain Additional Information
For additional information, visit our Wage and Hour Division Website: http://www.wagehour.dol.gov and/or call our toll-free information and helpline, available 8 a.m. to 5 p.m. in your time zone, 1-866-4-USWAGE (1-866-487-9243).
This publication is for general information and is not to be considered in the same light as official statements of position contained in the regulations.
Here Are the 4 Things Employers Must Know About Wage Garnishment
Remember, all garnishments are not the same, and there are six common types of wage garnishment.
It’s important for businesses to understand the different types of wage garnishments and learn ways to accurately and efficiently process them.
Proper management of wage garnishment can be especially crucial to growing businesses because as their hiring increases, they may also be inadvertently increasing their garnishment liability. That’s why it’s important for an employer to remember four things can help appropriately and accurately process wage garnishments while remaining compliant.
1. All garnishments are not the same.
Here’s a basic wage withholding definition: When an employee fails to repay a debt, a wage withholding court order can be issued against the employee’s earnings to satisfy that debt. This court order — also called a wage garnishment — requires the employer to withhold a portion of the employee’s wages and forward them to a third party. Wage garnishment orders also can be issued by government agencies such as the IRS, state tax agencies and the U.S. Department of Education.
Simple, right? A business receives an order about one of its employees and refers it to its payroll department to process by withholding the appropriate wages and forwarding it to the proper recipient.
There are six common types of wage garnishment. They are:
Child support garnishment comprises by far the highest volume of orders employers process, and, while some of the laws are very standardized, the law can vary by state.
Creditor garnishments are debts that occur when a person is delinquent on consumer payments (e.g. credit card debt). The creditor may take the debtor to court and seek a wage withholding order for the outstanding debt.
Bankruptcy orders. Based on research from the American Bankruptcy Institute, 97 percent of all bankruptcies are personal filings rather than business filings.
Student loans may be collected by the U.S. Department of Education, which may contract with collection agencies to enforce and collect the defaulted loans.
Tax levy garnishments can be issued at the federal, state or local level. Each state differs in its requirements and those laws may differ from federal levies.
Wage assignment occurs when an employee voluntarily agrees to have money withheld from his or her wages. Wage assignments are governed by state law and do not involve a court order. Since they are voluntary and the employee specifies the amount to withhold, they do not fall under the requirements of the Federal Consumer Credit Protection Act.
It’s important that employers keep in mind the type of debt owed, the party collecting it, and the laws applicable to that debt. Knowing which laws, rules, and regulations apply and keeping current on them when processing wage garnishments can be challenging for employers, and, if done incorrectly, may expose employers to various liabilities and penalties.
In addition, the six types of wage garnishments noted above are the most common wage garnishments; employers may receive other less common types of wage garnishments. It’s the employer’s responsibility to comply with and make sure all orders are processed in a timely manner and correctly whether or not they are familiar.
2. Wage garnishment can affect employee productivity and morale.
Most employers recognize that wage garnishment has a direct impact on employees. However, this impact can extend beyond their paychecks. Processing garnishments is not as straightforward as simply withholding wages from an employee’s paycheck and sending a payment. The process is far from simple and can be complicated by myriad emotions.
Employees often find it humiliating because the courts have intervened and employers have become involved in their private struggles.
Employees in this position may feel that they’re now working for the institutions to which they’re indebted rather than for themselves and their futures. Stress and anxiety are often natural extensions of the garnishment process.
An affected employee’s anxiety could show itself through decreased productivity or a lack of motivation. Employers can help affected employees and potentially decrease future garnishments by providing financial wellness training and counseling, as well as tax education, to help employees manage debt.
3. Wage garnishment can affect an employer’s finances and business efficiency.
Employees aren’t the only ones affected by wage garnishment. Employers expose themselves to financial and legal risk when they incorrectly garnish an employee’s wages, fail to file in a timely way, file a defective response, fail to follow specific requirements when sending payments, or make other missteps with a garnishment. Mishandling a garnishment can lead to a judgment against the employer for the entire amount of the employee’s debt, a lawsuit from the creditor or the employee, or other costs or penalties that the employer didn’t anticipate or budget for.
In the instance of garnishments for child support, employers could potentially feel the impact of laws designed to restrict travel. For instance, the Social Security Act was amended in 1997 with a sub-section that established the denial, revocation, or restriction of U.S. passports if the non-custodial parent has child support arrears of $2,500 or more. Additionally, some state agencies have the authority to deny or revoke drivers’ and professional licenses for past-due child support obligations.
If your business requires employees to travel internationally or employs drivers, these laws could impact an employee’s ability to do his or her job effectively and, by extension, impact the efficiency of your business.
Another current area of focus that could impact employers is in the creditor garnishment arena. Currently, the American Payroll Association is working with the Uniform Law Commission to establish a standardized processing for creditor garnishments through the Uniform Wage Garnishment Act, which proposes to standardize the wage-garnishment process for employers, employees and creditors. Currently, state laws differ significantly in their requirements regarding wage garnishment, from the beginning to the end of the garnishment, and are often outdated. This means businesses that operate in multiple states must identify and abide by these different legal requirements, which can potentially lead to processing errors, confusion, inefficiency and noncompliance.
Companies can help manage these challenges if they become familiar with garnishment laws and guidance from agencies such as the Federal Office of Child Support Enforcement, develop reliable and timely procedures for garnishment processing and ensure that policies are administered fairly for all employees facing a wage garnishment.
It may be useful to develop tools, resources and strong contacts with agencies, courts and garnishors. Staying close to these agencies may help your business remain aware of major changes to wage garnishment laws.
Consider participating in state and federally initiated pilot projects. These programs are valuable opportunities to positively build relationships, influence initiatives and provide needed feedback. Make sure you have established a way to monitor legislation that could affect garnishment processing.
Other steps an employer can take include participating with committees, attending conferences regarding wage withholding, and leveraging other contacts you’ve developed with the agencies, those imposing wage garnishments, or other employers.
4. Paper processing is the not the only option.
A study by the ADP Research Institute revealed that 7.2 percent of employees had wages garnished in 2013. Keeping pace with the proper and timely processing of wage garnishments is challenging for many businesses.
As wage garnishment volumes and laws intensify, garnishment processors have the option to use electronic funds transfer, or EFT, to save time, increase efficiency, streamline processes and potentially reduce costs.
Currently, virtually every child support state agency has the ability to accept child support payments via EFT, and some have even mandated employers to send payments electronically. Some tax levy agencies, trustees and student loan agencies also are implementing electronic payment capabilities. In addition to business efficiencies, EFT enables greater security of personally identifiable information, such as Social Security numbers.
Minnesota has passed legislation requiring employers to electronically file their response to a state tax garnishment summons with the state tax agency, and Wayne County Court in Michigan is piloting the option of electronic responses.
Electronic income withholding orders are already very popular. These enable states to electronically distribute income withholding orders and employers to electronically accept or reject them.
Clearly, wage garnishment can have a profound effect on the employee who is being garnished, as well as the employer who must implement the garnishment. It’s important for businesses of all sizes to understand the different types of wage garnishment, familiarize themselves with the laws governing them, and learn ways to accurately and efficiently process them.
Using best practices can help streamline an employer’s responsibilities and ease the potential anxiety an employee may feel with this sometimes-necessary workforce issue.
Julie Farraj is vice president of Garnishment Services for ADP Added Value Services. Comment below or email email@example.com.