Disposable Earnings

HR Glossary for HR Professionals

Glossary of the most common HR terms and acronyms to assist professionals navigating the ever-growing and ever-changing world of HR terminology.

Disposable Earnings

What are Disposable Earnings?

One can define disposable earnings as the amount of pay that remains following legal deductions. 

Mandatory Deductions: From gross pay, employers deduct federal, state, and local taxes, as well as Social Security, Medicare, and Unemployment Insurance tax. Additionally, employers must deduct withholdings for employee retirement per state requirements. 

Elective Deductions: Deductions that are not required by law include health and life insurance premiums, savings bonds, 401(k) contributions, etc. 

What are Disposable Earnings for Garnishments?

Disposable earnings can also be defined as a portion of income that’s eligible for garnishments. Disposable earnings are considered to be gross income, minus any legally required deductions, for example, taxes and social security.

If an employee contributes to savings, life insurance, etc., they can adjust the amount of contributions in the event of wage garnishments in order to increase their take-home pay.

How much can be garnished from a paycheck?

Courts are able to order part of one’s income to be withheld to pay outstanding debts. The CCPA (Consumer Credit Protection Act) limits the amount that can be garnished, and also protects the employee from facing financial hardships due to garnishments.

In addition, there are limitations on who can garnish wages. In order to do this, creditors must first file a lawsuit, and win the judgement of the lawsuit. Following the win of the judgement, the creditor can get court permission to access funds from their paycheck.

Related Terms: Floating Holidays

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