Wage Garnishment under the Consumer Credit Protection Act

Consumer Credit Protection Act

Sometimes, a court may direct an employer to withhold a portion of an employee’s earnings and to pay the withheld amount to the court or a creditor. Sometimes a state or the federal government may direct an employer to withhold part of an employee’s wages must because the employee owes unpaid taxes. The legal process by which an employee’s wages are withheld is referred to as garnishment.

In Title III of the Consumer Credit Protection Act, Congress has prescribed a number of rules to govern the wage garnishment process. The Act applies to any person receiving a wage, salary, commission, or bonus in the United States. The Act is administered by the Wage and Hour Division of the Department of Labor’s Employment Standards Administration.

Wage Garnishment Restrictions

Pursuant to the Act, there are limits on wage garnishment amounts, regardless of how many garnishment orders are directed to the employer. In most cases, the maximum weekly amount that may be withheld from an employee equals the smaller of:

1. 25 percent of the employee’s disposable weekly income, or

   1. the amount by which an employee’s disposable weekly earnings are greater than 30 times the federal minimum wage of $5.15 per hour ($154.50).

Under the Act, disposable income is that income remaining after deductions for local, state, federal, and employment taxes are made.

Example: Jack’s weekly after-tax earnings are $550. Under scenario one above, Jack’s employer could withhold $137.50 pursuant to a garnishment order. Under scenario two above, it could withhold $395.50. Under the Act’s rules, Jack’s employer may only withhold $137.50, the smaller of the two amounts. Jack will receive $412.50 in pay.

The above restrictions do not apply to garnishment orders for child support, bankruptcy, or state or federal taxes. In the case of child support, up to 50 percent of a worker’s wages may be garnished if the worker is supporting another spouse or child. Sixty percent of his or her wages may be withheld if he or she is not supporting another spouse or child.

Restrictions on Employee Discharge

The Act provides that an employer may not discharge an employee because the employee’s wages are subject to garnishment for the payment of one debt. It does not protect an employee from discharge, however, where the wages are subject to garnishment for more than one debt.