CPP/FPC Fall Study Group

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Section 9: Other Deductions From Pay

Involuntary Deductions

• Employer and employee have no control over the deduction

• Employer is required by law to deduct amounts from the employee’s check and remit those funds to satisfy the employee’s debt.

Priority of Multiple Orders

• Bankruptcy Order (except Child Support Order)• Child Support Order prior to Federal Levy • Federal Tax Levy• Child Support• Administrative Wage Assignment (AWG) including

government ordered student loans of 15%• State Tax Levy• Student Loan (state ordered 10%)• Creditor Garnishment• Voluntary Deduction

Tax Levy

• Used to collect unpaid taxes after all other means have been exhausted by a state or federal agency.

• Take precedence over all other garnishments except for child support orders already in effect and bankruptcy.

• If more than one tax levy, then first come first served.

Form 668-W Notice of Levy on Wages, Salary, and

Other Income

Has 6 parts

• Part 1 is the employer’s copy• Parts 2-5 send to the employee (Parts 3-4

should be returned to Employer in 3 days)• Part 6 is for the IRS• If forms are not returned then the employee

should be treated as married filing separately with one exemption.

Figuring the amount to deduct and remit for levy

Wages exempt from levy

• Unemployment compensation benefits*• Worker’s compensation benefits*• Annuity and pension payments under the Railroad

Retirement Tax Act *• Certain armed service-connected disability payments• Certain public assistance payments *• Amounts ordered withheld under a previously issued

court order for child support

Note: * can now be attached for 15%

Levy Take Home Pay

Gross Earnings less:1. Taxes2. Deductions (voluntary or involuntary) in

place before levy is received3. Increases in deductions beyond the

employees control (medical premiums)4. Deductions added after a levy is received

that are a condition of employment (union dues)

When to make payments/Stop Withholding

• 668-W says pay same day• Penalties – full amount to be withheld

plus interest, and penalty of 50% of the amount recoverable by the IRS

• Form 668-D – Release of Levy / Release of property from Levy

• Notify IRS when EE terms

Child Support

• Wage withholdings become automatic if non-custodial parent is late one month in paying support

• Joint Federal/State responsibility for enforcement

• Withholding laws are based on the Consumer Credit Protection Act (CCPA)

• Take precedence over all other garnishments except for levies that are already in effect and bankruptcy court orders that include child support obligations. (p. 9-11)

Order/Notice to Withhold Income for Child Support

• Standard form (see 9-16 & 9-17)

• Some information varies by state

• One centralized disbursement unit per state

• Employer allowed to withhold an administrative fee in most work states

• Must withhold for employee and independent contractors

CCPA Limits

• 50% if employee is not in arrears and is supporting another family

• 55% if employee is in arrears by 12 weeks and is supporting another family

• 60% if the employee is not in arrears and is not supporting another family

• 65% if the employee is in arrears by 12 weeks and is not supporting another family

Uniform Interstate Family Support Act (UIFSA) (p. 9-15)

• Must honor orders from other states that are “regular on its face”

• Duration and amount of periodic payments• Person or agency who will receive payments• Medical support (40 business days to state if

employee has a plan)• Amount of payment fees and costs for the

enforcement agency• Amount of arrears payments and interest

Multiple Orders

• Follow the laws in the state where the employee works

• Most states require child support to be fulfilled before medical insurance premiums are paid.

1. Pro-rate2. Equal funds3. 1st come 1st served (Montana only)

Child Support Continued…

• Employee attempt to avoid withholding

• Handling child support for employees serving in the military

• Employers must withhold from independent contractors.

• Medical child support orders (9-28 – 9-29)

Creditor Garnishments CCPA limits

Garnishments cannot exceed the lesser of:

– 25% of disposable earnings; or

– Amount that the employees disposable earnings for the week exceed 30 times the federal minimum wage.

• Prohibited from terminating an employee because the employee’s “earnings have been subject to garnishment for any one indebtedness”

• One creditor garnishment at a time

Bankruptcy Orders

• Employer must stop withholding on any other garnishments against the employee (if included in the bankruptcy)

• Chapter XIII bankruptcy orders take priority over levies

• 2005 Act and child support

Student Loans• To repay a loan granted under the Federal Family

Education Loan Program• Max amounts

– The lesser of 15% disposable earnings– Or the excess of the employee’s disposable earnings

over 30 times the federal hourly minimum wage – – Multiple student loans the max increased to CCPA

limit of 25% of disposable earnings.• If terminated and rehired within 12 months, student loan

withholding can start 12 months after rehire date.

Federal Agency Debt Collection aka Administrative Wage Garnishments (AWG)

• For payment of government, non-tax debts (FHA, VHA, HUD)

• If employee involuntarily terminates and is re-employed, deduction can start after 12 months of re-employment

• Max amounts– The lesser of 15% disposable earnings– Or the excess of the employee’s disposable earnings

over 30 times the federal hourly minimum wage –

Voluntary Deductions

• Wage Assignments– Voluntary agreement to a deduction – Not covered under the CCPA– Employer can decide to honor or not

• Union Dues – In addition to mandatory dues– Need a written signed authorization– Can not be revoked for 1 year

More About Deductions

Charitable Contributions• $250 threshold for substantiation (single check)• Substantiate contributions by providing the

following: – Pay stub, W2, a pledge card from the charity

FLSACan my net pay fall below minimum wage?

Resources

•Payroll Source

•Family Support Registry

•National Web Site

•Actual Support Orders

•State Tax Levy

Record keeping and Record Retention

Section 10

Recordkeeping

and Retention FLSA

IRC

Title VII

IRCA

FMLA

State

FLSA…….Required by DOL

2 years from last date of entry•Basic employment and earnings records

2 years from last effective date•wage rate tables and piece rate schedules, work time schedules establishing hours and days of employment

FLSA…….Required by DOL

3 years from last date of entry– SS Card Name – home address – date of birth < 19 –

gender and occupation – workweek begin – regular rate of pay for each week – hours worked – earnings (regular & OT) – additions to and deductions from pay – total wages paid – date of payment & pay period covered.

3 years from last effective date– collective bargaining agreements –

certificates – records showing total sales volume and goods purchased

FLSA…….Required by DOL

White Collar/Exempt Employees

Hospital Employees

Tipped Employees

IRC – TAX4 years after the due date of the tax, or 4 years after the date the tax is actually paid if later

Maintenance of Records

Penalties for non-compliance

Penalties for Faulty Recordkeeping

IRS Goal: make it easy for IRS to calculate the correct tax liability

Title VII of the Civil Rights Act

ADEA – Age Discrimination in Employment 3 years for employee records 1 year for applicant records

IRCA – Immigration Reform and Control Act

I9 – Know this one!

72 hours: time available to produce records for inspection by DOL or EEOC

FMLA Records in addition to Master Control

Items

Exception for Exempt Employees

Medical Records – CONFIDENTIAL

Record format is flexible

State Taxes, Orders and EscheatWage & Hour: MI 3 yrs, Federal 4 yrs

Child Support/Wage Attachments: Preserve for 3 yrs after last withholding

from employees wages

IRS Levies: 4 yrs from last withholding or until any related legal action is concluded

Escheat: MI 10 yrs

Retention and StorageObtainable

ReadableEasy to calculate liability

No law dictating form of retention and storage

Retrieval and DestructionHave a clear, written policy and

implement it

MISC Important InformationDirect Deposits: no retention

requirements after Direct Deposit is discontinued

Master File – Table 10.4 (pg 10-17)

Records needed from new employees:

I9 and W4

Cheat Sheet Data

ADA = 1 year (1st letter in the alphabet)

Time Sheets = 2 years (2 letters)

HR = 3 years (2 letters + 1)

TAX = 4 years (3 letters +1)

OSHA = 5 years (4 letters + 1)

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