So we all know that paying bills suck; but we work our jobs so we can pay our bills and pay off any loans we have. Unfortunately, there are some who do not earn enough to afford the credit card payments, credit loans from the bank or payday loans. When that happens, the Creditor can take the person to court to file a judgment against them to garnish their wages to collect their credit payments; as well as accrued interest on those garnishments. When this occurs, the employee would be charged the lesser of the two numbers: A) 25% of disposable income (which basically means taxable wages minus legally required taxes (Federal, State, Social Security, Medicare, and Local Taxes)), or B) Wages in excess of thirty (30) times minimum wage ($7.25) on a weekly basis.
So let’s break that down even further for the mathematically challenged; don’t worry, it gets all of us in the beginning. So when calculating the employees disposable wages, we first take the employees Gross Wages earned (Let’s say it is $1000 earned on a weekly basis), then subtract any pre-tax deductions (Let’s say this is $200 in pre-tax deductions) to get taxable wages ($1000 - $200 = $800 taxable wages). Once we have the taxable wages, we will then apply the taxes for all Federal, State, Local, Medicare, Social Security etc (Let’s say total taxes would be $220.00). At this point, we need to do the following to get the disposable wages:
Now that we have the disposable wages, we now need to look at the employees creditor garnishment paperwork to determine what the Courts deemed as the payment, or if they’re are applying the regular 25% of disposable income, or thirty (30) times minimum wage. Let’s say the Creditor Garnishment Paperwork judgment says the employee owes $150 per pay period or per check. Before we get to the part of determine which one will affect the employees disposable (or after tax wages) the least, let’s break down how the numbers are calculated for thirty times minimum wage.
The Department of Labor and the Consumer Credit Protection Act (CCPA) set limitations on what can be garnished and set the percentage limits on wages which can be garnished. They limit the amount of garnishments on those such as Creditor or Student Loan Garnishments. Not only do they set the maximum percentages for those garnishments, but they also set the maximum percentages for Child Support Garnishments as well. Since we’re dealing with a Credit Garnishment in this scenario; let’s break down the math for how thirty times minimum wage is determined. First, you need to know how often the employee is paid; or frequency of paychecks. That could be Weekly, Biweekly, Semi-Monthly and Monthly; however, there is always a chance the employee is paid outside of these parameters, but we are focusing on just these four for our purposes today.
So the way the government calculates the thirty (30) times minimum wage rates; they break it down by frequency of payment. If you are interested in seeing the fact sheet from the Department of Labor regarding Federal Wage Garnishment law, please CLICK HERE.
| Weekly | Biweekly | Semi-Monthly | Monthly | |
|---|---|---|---|---|
| 30/week * 52 weeks = 1560 hours/year | 1560/ 52 checks = 30 hours | 1560/ 26 checks = 60 hours | 1560 / 24 checks = 65 hours | 1560 / 12 checks = 130 hours |
| Calculation | $7.25 * 30 hours | $7.25 * 60 hours | $7.25 * 65 hours | $7.25 * 130 hours |
| 30x’s Minimum Wage | $217.50 | $435.00 | $471.25 | $942.50 |
Now that we’ve established how the government determines the thirty times minimum wage limit; let’s assume the employee is paid weekly; so, the employees 30x’s minimum wage number would be $217.50. This number is what the employee *MUST* go home with after the garnishment is taken out of their disposable wages. If the employer garnishes the employees wages and the employee goes home with less than the 30x’s minimum wage amount; they would have violated the CCPA and Department of Labor’s Federal Garnishment Laws. So let’s break down the employees garnishments and which one will be taken:
| Disposable Wages | 25% of Disposable Wages | 30x’s Minimum Wage | $150 Creditor Judgment |
|---|---|---|---|
| $780.00 | $195.00 | $562.50 | $150.00 |
| Wages after Garnishment | $585 | $217.50 | $630 |
| Which Garnishment is Chosen? | NO | NO | YES |
So you can see we are actually going to take the $150 garnishment from the employee because they go home with more money after the garnishment affects their disposable wages. If we took 25% of the employees' disposable wages; they would go home with $585. If we took the wages ABOVE thirty times minimum wage; that total garnishment would be $562.50 because that is everything above $217.50. Since the employees disposable wages are $780; $780 minus $217.50 equals $562.50; that would be the garnishment amount. As you can see, that is much higher than the other two. The employee would be affected by the $150 garnishment judgment the least and will go home with more money. So, next time you are trying to calculate how a garnishment works, you need to factor in those three calculation methods for the Creditor Garnishment amounts in order to determine why they were garnished the particular amount.
If you are having trouble calculating the numbers for the garnishment for the 25% or the thirty-times minimum wage; I’ve got the perfect solution for you! I have a pre-built Creditor Garnishment Estimator that factors in the employees earned wages, federal taxes, state taxes, local/disability taxes, pre-tax deductions; and will provide an rough estimation of the garnishment numbers for the 25% and the amount above the 30x’s minimum wage based on the employees payment frequency. If you need help with these calculations, I hope you use my free estimator which can be found by
Last Updated on 6/7/2024 @ 7:20 AM CDT