What are ‘disposable earnings’ within a wage garnishment order?

Posted March 21, 2017

By Ed Zalewski, PHR, editor, J. J. Keller & Associates

Running a business – or managing the human resources department within a business – is not easy. Questions that have legal and/or regulatory implications pop up on a regular basis. Answers to some of those questions aren’t always straightforward, and can require insight into various statutes as well as case law. This article shares a common scenario and some interpretive guidance.

Question: We received a garnishment order for one of our employees. It requires us to deduct a percentage of his disposable earnings. What are “disposable earnings”?

Answer: The term “disposable earnings” means the amount of pay remaining after legally required deductions. From gross wages, you must deduct federal, state, and local taxes, as well as the employee’s share of Social Security, Medicare, and State Unemployment Insurance tax. You must also deduct withholdings for employee retirement systems that are required by law.

Deductions not required by law include things such as union dues, health and life insurance premiums, charitable contributions, purchases of savings bonds, 401(k) contributions, and repayments of payroll advances or purchases of merchandise. You must calculate the disposable earnings before subtracting these amounts from gross earnings.

The term “earnings” generally includes all payments to employees, including most bonuses or lump sum payments. However, tips received from customers generally don’t count as earnings and are not subject to garnishment. Properly calculating the correct disposable earnings is critical because an employer can be held liable for failing to withhold and remit the required percentage of earnings.

The bottom line is this: Under a garnishment order, “disposable earnings” are the wages remaining after mandatory wage deductions but before elective deductions.

About the author:

Ed Zalewski is a certified Professional in Human Resources and an editor at J. J. Keller & Associates, a nationally recognized compliance resource company that offers products and services to address the range of responsibilities held by human resources and corporate professionals. Zalewski specializes in employment law topics such as the Fair Labor Standards Act, employee benefits, and discrimination and harassment. He is the author of J. J. Keller’s FLSA Essentials guidance manual and BottomLine Benefits & Compensation newsletter. For more information, visit www.jjkeller.com/hr. View Ed’s LinkedIn profile.