Only in California …

As of July 1, 2016, employers in California must change the way they process Earnings Withholding Orders (wage garnishments), which are traditionally used for creditor debts. The amended law dictates that the amount withheld from an employee’s disposable earnings shall not exceed the lesser of (1) 25 percent of the employee’s disposable earnings for that week, or (2) 50 percent of the disposable earnings for that week that exceed 40 times the state minimum hourly wage in effect at the time the earnings are payable. Section 706.050 of the Cal. Code of Civil Procedure. If the employee works in a locality that has its own minimum wage, then the employer must use that locality’s minimum wage in the calculation.

The multiplier changes depending on the pay period used by the employer. For a bi-weekly pay period, the employer would multiply the applicable minimum wage by 80. For a semi-monthly pay period, the employer would multiply the applicable minimum wage by 86 and two-thirds. And, for a monthly pay period, the employer would multiply the applicable minimum wage by 173 and one-third.

Here are some examples of the calculation for a bi-weekly employer:

An employee makes $750 in disposable earnings each pay period (bi-weekly). First, compute 25 percent of the employee’s disposable earnings, which is $187.50. Then, compute the amount using the method outlined in (2) above. If the applicable minimum wage is $10 an hour, multiply 80 x $10, which equals $800. This actually exceeds the disposable earnings. The amount computed using the method outlined in (2) above is $0. Thus, all of the disposable earnings are exempt, and the employer deducts nothing.

An employee makes $1,000 in disposable earnings each pay period (bi-weekly). First, compute 25 percent of the employee’s disposable earnings, which is $250. Then, compute the amount using the method outlined in (2) above. If the applicable minimum wage is $10 an hour, we multiply 80 x $10, which equals $800. The disposable earnings exceed $800 by $200. Then, multiply $200 by 50 percent. So, the amount computed using method (2) above is $100. The lesser amount computed using the two methods is $100. Thus, the employer can withhold $100 from the employee’s pay check.

An employee makes $1,500 in disposable earnings each pay period (bi-weekly). First, compute 25 percent of the employee’s disposable earnings, which is $375. Then, compute the amount using the method outlined in (2) above. If the applicable minimum wage is $10 an hour, we multiply 80 x $10, which equals $800. The disposable earnings exceed $800 by $700. Then, multiply $700 by 50 percent. So, the amount computed using method (2) above is $350. The lesser amount computed using the two methods is $350. Thus, the employer can withhold $350 from the employee’s pay check.

An employee makes $2,000 in disposable earnings each pay period (bi-weekly). First, compute 25 percent of the employee’s disposable earnings, which is $500. Then, compute the amount using the method outlined in (2) above. If the applicable minimum wage is $10 an hour, we multiply 80 x $10, which equals $800. The disposable earnings exceed $800 by $1,200. Then, multiply $1,200 by 50 percent. So, the amount computed using method (2) above is $600. The lesser amount computed using the two methods is $500. Thus, the employer can withhold $500 from the employee’s pay check.

Most payroll processing providers can automatically perform the calculations, but many employers do so manually. If you get caught up in the math or want a fuller explanation of the examples and law above, MSEC can help.