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DOL Opinion Letter: Do Employers' Contributions to Employees' HSAs Constitute Earnings for Wage Garnishment Purposes Under the Consumer Credit Protection Act (CCPA)?

The Department of Labor (DOL) recently released a letter for their opinion regarding whether employers' contributions to employees' health savings accounts (HSAs) constitute earnings for wage garnishment purposes under the Consumer Credit Protection Act (CCPA).

Although many employers have established HSAs for their employees, some employers consider contributions made to HSAs as earnings under the CCPA. A primary concern is regarding employees with higher disposable earnings where employers may ultimately be exceeding CCPA limits in calculating wage garnishments. Due to the possibility that wage garnishments are being withheld in error and in excess of CCPA limits, the DOL was asked to provide their opinion/guidance on whether employer contributions to an employee's HSA qualify as earnings under the CCPA.

How Does the CCPA Define Disposable Earnings?

The CCPA defines disposable earnings as that part of the earnings of any individual remaining after the deduction from those earnings of any amounts required by law to be withheld. Earnings are compensation paid or payable for personal services, whether denominated as wages, salary, commission, bonus, or otherwise, and includes periodic payments pursuant to a pension or retirement program. Based on the CCPA definition of earnings, the DOL opinion was determined that employer contributions to HSAs are not earnings under the CCPA and are therefore not subject to the CCPA's garnishment limitations.

Additionally, contributions that are already in an HSA are past the point when they may be withheld or garnished by an employer. They are like earnings that have been deposited into a bank account. In that regard, the Wage and Hour Division (WHD) has also opinioned that the CCPA does not apply to an employee's bank accounts comprised of earnings already received by the employee. An HSA account follows the same concept in that it contains employer's contributions, and the CCPA does not apply to contributions already received by the account; they are not subject to the CCPA's garnishment limitations.

What Does This Mean for Employer Contributions?

When an HSA contribution is still in the employer's possession and is about to be paid to the employee account, it could be subject to the CCPA's limits on garnishment. The determination of whether it is subject to the CCPA’s limits on garnishment is whether employers' HSA contributions constitute earnings. The CCPA defines earnings as compensation paid or payable for personal services, wages, salaries, commissions and bonuses. These wages, salaries, commissions and bonuses are set apart from an employer’s contribution to HSA’s in that they relate in some degree to the amount or value of an employee's services. They normally reward employees for their accomplishments, their amount or length of service, or their contributions to the company. The amounts employers contribute to employees' HSAs do not vary in proportion to the amount or value of employees' personal services. Because the employer has determined the contribution amount before the beginning of the plan year or agrees to match employees' contributions up to fixed amounts, their contribution to an employee's HSA is not to compensate the employee directly for the amount or value of their services.

For the reasoning explained above and based on the DOL’s understanding of the characteristics of HSAs, employer contributions to HSAs are not earnings as defined by the CCPA. This remains true, as long as the employer does not determine HSA contributions on the basis of the value of individual employees' services and does not give employees the option of receiving cash in lieu of an employer's contribution.

If all of this is true, then the employer's contributions to an HSA are not earnings under the CCPA and are not subject to the CCPA's garnishment limitations. This means the employer should not include its HSA contributions when calculating the employee's disposable earnings for purposes of determining the maximum amount of an employee's pay that may be garnished under the CCPA.

To find out more about the CCPA limitations pertaining to your plan, contact your OneDigital Consultant today. Check out the latest in benefits compliance by visiting the OneDigital Compliance Confidence blog.

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