I. INTRODUCTION
Wage garnishment, a legal procedure most often ordered by a court, requires an employer to withhold the earnings of an individual employee for the payment of a debt. Title III of the federal Consumer Credit Protection Act (“Act”) limits the amount of an employee’s earnings that may be garnished. The Act also protects an employee from termination of employment if pay is garnished for one debt. The Act is administered by the Wage and Hour Division of the Department of Labor’s Employment Standards Administration.
The Act applies to anyone in all 50 states, District of Columbia, Puerto Rico and all U.S. territories and possessions who receives personal earnings, i.e., wages, salaries, commissions, bonuses, or income including earnings from a pension or retirement program. Under the Act, tips are not considered earnings and voluntary wage assignments are not affected, i.e., circumstances where employees voluntarily agree that their employers may turn over some specified amount of their earnings to a creditor or creditors.
II. EMPLOYMENT DISCHARGE PROTECTION
The Act prohibits an employer from discharging an employee whose earnings have been subject to garnishment for any one debt, regardless of the number of levies made or proceedings brought to collect it; however the Act does not prohibit discharge if an employee's earnings have been garnished for a second debt or subsequent debts.
III. FEDERAL WAGE GARNISHMENT RESTRICTIONS
The wage amount subject to garnishment is based on an employee’s “aggregate disposable earnings,” i.e., the amount remaining after legally required deductions have been made for federal, state and local taxes, Social Security, unemployment insurance and state employee retirement systems. Other payroll deductions are note voided by the Act, e.g., health and life insurance, charitable contributions, voluntary wage assignments, savings bonds purchases, union dues and payments to employers for payroll advances or purchases of merchandise, are not required by law and are not subtracted from gross earnings when calculating the amount of disposable earnings.
The maximum amount that may be garnished in any workweek or pay period, regardless of the number of garnishment orders received by the employer, may not exceed the lesser of two calculations:
In cases involving child support or alimony, specific restrictions apply to court orders. The Act allows up to 50 % of an employee’s disposable earnings to be garnished if the employee is supporting another spouse or child and up to 60 % for an employee is not. An additional 5 % may be garnished for support payments over 12 weeks in arrears.
IV. WAGE GARNISHMENT EXCEPTIONS
The Act provides that garnishment restrictions do not apply to bankruptcy court orders and debts due for federal or state taxes. When a state’s wage garnishment law differs from the federal Act, the law resulting in the smaller garnishment amount must be observed. Nebraska’s garnishment laws are nearly identical to the restrictions contained in the federal Act.
V. CONCLUSION
Related articles addressing the garnishment issue in the NBA Compliance Handbook may be found in Volume I, Personnel Section, "New Hire Reporting Requirement: Child Support Enforcement" and "United State Bankruptcy Code: Prohibition against Discrimination toward Bankrupt Employees" and in Volume II, Deposit Accounts Section, "Garnishment."