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DOL Opinion Letter Answers APA Query Regarding Garnishment of Lump-sum Payments

BY: APA Staff | 04/13/18

Nearly every type of lump-sum payment APA members could envision is covered by the Consumer Credit Protection Act (CCPA), according to an opinion letter released by the Department of Labor’s Wage and Hour Division (WHD) on April 12.

The letter was in response to a query from APA’s Government Relations Task Force Subcommittee on Child Support and Other Garnishments. Members had noted that certain states appeared to require employers to overwithhold when collecting past-due child support from lump-sum payments. Wage withholding limits may be determined by state law but they cannot exceed those established by the federal CCPA, which, for child support, range between 50% and 65% of disposable earnings. Some states seek to garnish as much as 100% of a lump-sum payment to cover child support arrearages. APA provided WHD with a list of 18 types of lump-sum payment, asking that WHD determine whether the CCPA’s withholding limits apply.

“To assess whether certain lump-sum payments are earnings and subject to garnishment limitations under the CCPA, the central inquiry is whether the amounts are paid by the employer in exchange for personal services,” WHD stated. “If the lump-sum payment is made in exchange for personal services rendered, then like payments received periodically, it will be subject to the CCPA’s garnishment limitations…. Conversely, lump-sum payments that are unrelated to personal services rendered are not earnings under the CCPA.”

WHD holds that the following lump-sum payments are earnings under the CCPA:

  • Commissions
  • Discretionary and nondiscretionary bonuses
  • Productivity or performance bonuses
  • Profit sharing
  • Referral and sign-on bonuses
  • Moving or relocation incentive payments
  • Attendance, safety, and cash service awards
  • Retroactive merit increases
  • Payment for working during a holiday
  • Workers’ compensation payments for wage replacement
  • Termination pay (e.g., payment of last wages, as well as any outstanding accrued benefits)
  • Severance pay
  • Back and front pay payments from insurance settlements

The following lump-sum payments are not earnings under the CCPA:

  • Workers’ compensation payments for medical expense reimbursements
  • Wrongful termination insurance settlement payments for compensatory or punitive damages
  • Buybacks of company shares