CCPA2018-1NA — Lump-sum payments and “earnings” under the garnishment provisions of the Consumer Credit Protection Act

U.S. Department of Labor Wage and Hour Division
Washington, DC 20210

CCPA2018-1NA
April 12, 2018
Dear Name*:
This letter responds to your request for an opinion letter from the Wage and Hour Division
(WHD) regarding whether certain lump-sum payments from employers to employees are
earnings for garnishment purposes under Title III of the Consumer Credit Protection Act
(CCPA). The opinion below is based exclusively on the facts you have presented. You have
represented that you do not seek this opinion for any party that WHD is currently investigating,
or for use in any litigation that commenced prior to your request.
BACKGROUND
In your opinion letter request, you inquired about lump-sum payments and garnishment limits
relating to withholdings for child support under the CCPA. You claim that when it comes to
lump-payments from employers to employees, states are disparately applying CCPA limits for
child support withholdings. In contrast, you note that there is consistent application of the CCPA
garnishment limits regarding wage payments periodically received by employees from
employers.
You note that if lump-sum payments are earnings under the CCPA, such payments would be
subject to the limits on the amount of earnings that may be garnished under the CCPA for child
support.
1
You describe that many states have set their own requirements for wage withholdings
from lump-sum payments, ranging between 0 to 100 percent.
2
Accordingly, you request that
WHD opine on whether the CCPA’s garnishment limits apply to lump-sum payments.
In follow up correspondence, you provided eighteen specific examples of the types of common
lump-sum payments from employers to employees. You ask that WHD opine on each fact-
specific example to determine if each is earnings under the CCPA:
Commissions: Generally, the employer pays commissions to an employee based on the
employee’s sales. For example, a salesperson receives a 20 percent commission that is
based on 20 percent of the total amount of the salesperson’s sales.

1
Title III of the CCPA limits the amount of earnings that may be garnished pursuant to court orders for “the support
of any person[,]” such as child support. See 15 U.S.C. § 1673(b). The CCPA allows up to 50 percent of a worker’s
disposable earnings to be garnished for such purpose if the worker is supporting another spouse or child, or up to 60
percent if the worker is not. An additional 5 percent may be garnished for support payments more than 12 weeks in
arrears. See id.; Fact Sheet #30: The Federal Wage Garnishment Law, Consumer Credit Protection Act’s Title III

(CCPA).

2
The CCPA’s limits on garnishment do not prevent states from “prohibiting garnishments or providing for more
limited garnishments.” 15 U.S.C. § 1677.

Discretionary bonuses: In providing discretionary bonuses, the employer retains sole
discretion regarding both the fact of payment and bonus payment amount. There is no
prior contract, agreement, or promise causing the employee to expect such payments
regularly. For example, an employer provides a year-end bonus based on business
performance.
Nondiscretionary bonuses: The employer uses a specific set of criteria to determine
bonus payments. Employees expect to receive the bonus if they meet the criteria. An
example of a nondiscretionary bonus is shift differential pay.
Productivity or performance bonuses: These are payments to employees for productive
or exemplary performance, e.g., for completing work quickly or exceeding production
quotas.
Profit sharing: These are payments to employees based on the employer’s profits. For
example, a chief executive officer receives, in addition to a salary, a profit sharing
payment of five percent of company profits.
Referral bonuses: The employer pays a referral bonus to an employee who helps recruit
new talent by recommending a candidate who is ultimately hired.
Sign-on bonuses: The employer pays a sign-on bonus to a new employee as an incentive
for accepting the job offer.
Moving or relocation incentive payments: The employer provides a one-time payment to
an employee for relocating to a new area, for example, as a result of the employee
accepting a new management role.

Attendance awards: The employer provides a monetary award to an employee who meets
certain attendance criteria, such as for being punctual over a particular time period.
Safety awards: The employer provides a monetary award recognizing an employee’s
safety performance. For example, a truck driver receives a cash award for several years of
accident-free driving.
Cash service awards: The employer provides a cash award recognizing an employee’s
length of service.
Retroactive merit increases: This is payment to an employee for a delayed pay increase.
For example, the employee receives notice of a pay increase in January, but due to a
delay, the employer provides the pay increase at a later time.
Payment for working during a holiday: The employer pays an employee who works
during a holiday his or her regular wages or a higher wage rate for foregoing the holiday
lump-sum payment for the period.
Workers’ compensation: These are wage replacement and medical benefit payments to
employees for job-related injuries.

Termination pay: Termination pay includes payment of last wages, as well as any
outstanding benefits, such as accrued vacation leave.
Severance pay: An employee may receive severance pay when the employer terminates
the employment other than for cause. This may be in addition to termination pay. For
example, the employee may receive a payment worth 12 weeks of wages for being
employed a total of 12 years.
Insurance settlements: These are payments to employees resulting from work-related
insurance settlements, such as for resolving an allegation of wrongful termination or a
claim involving unpaid wages; the insurance settlement payment may include back pay
and any other court-determined amounts, such as compensatory or punitive damages.
Buybacks of company shares: A buyback occurs when a company repurchases its shares
to reduce the number of company shares in the open market or as a flexible way of
returning money to shareholders relative to dividends. For employees with stock options,
the employees receive the proceeds via paycheck, direct deposit, payroll card, etc.
GENERAL LEGAL PRINCIPLES
Title III of the CCPA, among other things, limits the amount of an individual’s disposable
earnings that may be garnished. See 15 U.S.C. § 1673; 29 C.F.R. § 870.10-.11.
3

The CCPA defines “earnings” and “disposable earnings.” 15 U.S.C. § 1672. “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.” 15 U.S.C. § 1672(a). “Disposable earnings” are “that part of the earnings of
any individual remaining after the deduction from those earnings of any amounts required by law
to be withheld.” 15 U.S.C. § 1672(b).
The fact that lump-sum payments may occur only occasionally or one time does not alone render
them outside the scope of earnings under the CCPA. Indeed, bonuses are often infrequent or
given only one time, but the statute plainly includes them as earnings. 15 U.S.C. § 1672(a). Thus,
the compensatory nature of the payment, i.e., whether the payment is for services provided by
the employee, rather than the frequency of the payment, is determinative under 15 U.S.C. §
1672(a). “The statute Congress passed does not restrict itself to periodic payments. ... Congress
defines the only test as whether the payment is ‘compensation paid or payable for personal
services.’” United States v. Ashcraft, 732 F.3d 860, 863 n.4 (8th Cir. 2013) (quoting 15 U.S.C. §
1672(a) (discussing Kokoszka v. Belford, 417 U.S. 642, 651 (1974))).
WHD notes that earnings under the CCPA “may include payments received in lump sums.” Fact
Sheet #30: The Federal Wage Garnishment Law, Consumer Credit Protection Act’s Title III
(CCPA).
4

3
The CCPA defines “garnishment” as “any legal or equitable procedure through which the earnings of any
individual are required to be withheld for payment of any debt.” 15 U.S.C. § 1672(c).

OPINION
In determining whether certain lump-sum payments are earnings under the CCPA, the central
inquiry for WHD is whether the employer paid the amount in question for the employee’s
services. While not determinative, the frequency of payment may be a relevant part of the
analysis.
Lump-Sum Payments that Qualify as Earnings under the CCPA
In response to the facts posed in your opinion letter request, it is WHD’s opinion that the
following lump-sum payments provided from an employer to an employee are earnings under the
CCPA: commissions, discretionary and nondiscretionary bonuses, productivity or performance
bonuses, profit sharing, referral or sign-on bonuses, moving or relocation incentive payments,
attendance awards, safety awards, cash service awards, retroactive merit increases, payment for
working during a holiday, termination pay, and severance pay. WHD considers these specific
examples of lump-sum payments to be earnings under the CCPA because the reason for the
underlying payment is to compensate the employee for personal services rendered.
The CCPA specifically lists commissions and bonuses as examples of payments that are
earnings. 15 U.S.C. § 1672(a). The definition’s list of examples is non-exhaustive, and a profit
sharing payment is compensation for the employee’s service and is similar in nature to a bonus.
Likewise, a signing bonus, referral bonus, or moving or relocation incentive payment is a type of
bonus provided for the employee’s service to the employer. Similarly, a one-time lump-sum
payment awarded for the employee’s attendance, safety, or service record is in essence a bonus,
which is compensation for the employee’s personal services to the employer.
Retroactive merit increases, payment for working during a holiday, and termination pay, which
you described as payment of last wages and any accrued outstanding benefits, are payment of
wages and salary to an employee in exchange for the employee’s work and are plainly earnings
under the CCPA.
With regard to termination severance pay tied to the employee’s length of service, WHD will
treat such a payment as earnings under the CCPA. These payments are compensation for the
employee’s service and similar in nature to a cash service award. See Shah v. City of Farmington
Hills, 748 N.W.2d 592, 597 (Mich. Ct. App. 2008) (“Offering a severance payment constitutes a
bonus or other type of payment as compensation for the employee’s past ... personal services
...”).
Lump-Sum Payments Where Certain Portions Qualify as Earnings under the CCPA
For workers’ compensation and insurance settlements, certain portions of the payment may
qualify as earnings, while other portions may not.

4
As set forth in its Field Operations Handbook (FOH), WHD views the following payments to be earnings under the
CCPA because they are compensation paid by the employer for the employee’s services: sick and vacation pay (see
FOH 16a11); disability payments from an employment-based disability plan (see FOH 16a12; see also Field
Assistance Bulletin No. 2016-3); furnished facilities (e.g., meals and lodging) (see FOH 16b03(d)); and draw against
commission (see FOH 16b10).

At least a portion of workers’ compensation payments, whether paid periodically or in a lump-
sum, constitute earnings under the CCPA because certain payments are designed to replace
wages that would have been earned by the employee, but for the work-related injury.
5
Unlike
wage substitute payments, reimbursement for medical expenses is not payment for services
provided by the employer to the employee. Therefore, any portion of the workers’ compensation
payment that is attributable to reimbursement for medical expenses is not earnings under the
CCPA.
Similarly, certain portions of lump-sum payments resulting from wrongful termination insurance
settlements, may qualify as earnings under the CCPA. The parts of an insurance settlement
attributable to back and front pay are earnings under the CCPA. The wage portion constitutes
compensation for the employee’s services. However, portions of a wrongful termination
insurance settlement payment that result from compensatory or punitive damages are not
earnings under the CCPA. See United States v. Cooper, No. 02-40069, 2006 WL 3512936, *5-6
(D. Kan. Nov. 1, 2006).
Lump-Sum Payments that Do Not Qualify as Earnings under the CCPA
Out of the eighteen examples of lump-sum payments provided, only one, unconditionally, does
not qualify as earnings under the CCPA: buybacks of company shares.
Payments to employees resulting from buybacks of company shares do not appear to be
compensation for the employee’s personal services. As described, buybacks are a “flexible way
of returning money to shareholders relative to dividends.” Accordingly, there is no nexus
between personal services rendered and the company’s decision to repurchase the stock. The
company’s intent is to “reduce the number of its shares on the open market,” not to compensate
the employee for personal services rendered. Therefore, lump-sum payments received by an
employee pursuant to a company buyback are not earnings subject to the CCPA garnishment
limitations.
CONCLUSION
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. 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 as described in Fact Sheet #30: The Federal Wage Garnishment Law,
Consumer Credit Protection Act’s Title III (CCPA). Conversely, lump-sum payments that are
unrelated to personal services rendered are not earnings under the CCPA.
To summarize and for ease of reference, it is WHD’s opinion that the following lump-sum
payments, as specifically described above, are earnings under the CCPA:

5
See FOH 16a12 (disability payments from an employment-based disability plan constitute compensation for
personal service and, therefore, are earnings under the Act.); Ashcraft, 732 F.3d at 864 (“[b]ased on the Act’s plain
language,” disability payments received through an employer constitute earnings because “[t]hey are payments
designed to function as wage substitutes”).

• 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, as specifically described in your request, however, are not
earnings under the Act:
• Workers’ compensation payments for medical reimbursements
• Wrongful termination insurance for compensatory or punitive damages
• Buybacks of company shares
We trust that this letter is responsive to your inquiry.
Sincerely,

Keith Sonderling
Senior Policy Advisor

*Note: The actual name(s) was removed to preserve privacy in accordance with 5 U.S.C. §
552(b)(7).