Paycheck Deductions and Wage Garnishment
Federal and state law regulates the type and amount of paycheck deductions and wage garnishments that can be taken from an employee's income. Paycheck deductions are amounts withheld from a worker's regular paycheck, often for things such as approved pension contributions or health care expenses. Wage garnishment allows a creditor who obtains a court order to require your employer to set aside part of your paycheck and send this directly to your creditor.
Limits on Wage Garnishment
In order to garnish a worker's wages, a creditor usually must obtain a court judgment stating that they're owed money or that the worker has defaulted on a debt. Wage garnishment orders are commonly the result of unpaid taxes, defaulted student loans, defaulted credit-card debt, or unpaid child support.
The federal Consumer Credit Protection Act (CCPA) limits the amount an employee's wages can be garnished. These limits apply to most personal earnings, including wages, salaries, commissions, bonuses, and pension or retirement income. The CCPA also protects employees from being terminated because of a single garnishment. However, the CCPA does not protect an employee from being fired because of multiple or subsequent garnishments.
Ordinary garnishments are those not executed for support, bankruptcy, taxes, or debts to the federal government such as student loans. Garnishment applies to your gross income. This is the amount of an employee's income left after required deductions such as taxes and Social Security contributions. Earnings contributed to deductions not required by law, such as contributions to a pension or life insurance policy, still count as part of your gross income even if they're removed directly from your paycheck.
For ordinary garnishment, the weekly limit is the lesser of:
- 25 percent of the employee's disposable earnings, or
- the amount of an employee's disposable earnings that are greater than 30 times the federal minimum wage (at a federal minimum wage of $7.25 an hour in 2015, this amount is $217.50)
For a weekly paycheck of under $217.50, this means no wages could be garnished. For disposable earnings between $217.50 and $290, any amount about $217.50 would be garnished. For weekly earnings of $290 or more, a maximum of 25 percent could be garnished. Limits follow a similar pattern for payments made on a biweekly, semi monthly or monthly schedule.
Student Loans and Federal Debts
Non-tax debts owed to the federal government are governed by separate laws, with lower limits on what can be garnished. Federal agencies, or collections companies working for them, are allowed to garnish up to 15 percent of a worker's gross earnings for non-tax debts owed to the government. The Department of Education may also garnish up to 15 percent of gross earnings to repay defaulted federal student loans.
Child and Spousal Support
The limits establish by the CCPA for ordinary garnishment don't apply to garnishments for child or spousal support. Up to 50 percent of gross income can be garnished for child support if the worker is supporting a current spouse or child who isn't the subject of the support order. If the worker isn't supporting another spouse or child, up to 60 percent of gross income can be garnished. An extra 5% can be taken if support payments are more than 12 weeks behind.
In addition to garnishments paid to third parties, some employers may take paycheck deductions. Federal law prevents some types of deductions when these would reduce an employee's wage below the minimum wage. Under the Fair Labor Standards Act, an employer may not deduct the cost of items that are primarily for the benefit of the employer, such as uniforms or tools, if this causes the employee's wage to fall below minimum wage. For example, if it would cause an employee to make less than minimum wage, an employer may not:
- Make an employee reimburse an employer for a damaged tool or cash shortage
- Require that employees pay for customers who walk out on bills
- Require an employee to purchase or maintain tools or uniforms for the job
If such deductions don't result in an employee making less than minimum wage, they aren't prohibited by federal law.
State laws may supplement federal law on paycheck deductions and wage garnishment. For example, in California, an employer may not charge an employee for uniforms or business expenses regardless of the employee's payrate. In New York, an employer may not require an employee to buy supplies from a "company store" when alternatives are available.
How a Lawyer Can Help
If your income is subject to wage garnishments or you're experiencing questionable paycheck deductions, consider contacting a qualified wage and hour law attorney who can answer your questions and explain your rights.