BILL ANALYSIS Ó AB 1775 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 1775 (Wieckowski) As Amended June 21, 2012 Majority vote ----------------------------------------------------------------- |ASSEMBLY: |46-25|(April 23, |SENATE: |22-16|(August 20, | | | |2012) | | |2012) | ----------------------------------------------------------------- Original Committee Reference: JUD. SUMMARY : Increases the amount of a judgment debtor's weekly earnings that are exempt from levy under an earnings withholding order from 30 times the federal minimum wage to 40 times the California minimum wage. Specifically, this bill : 1)Provides that the maximum amount of disposable earnings of a judgment debtor for any work week that is subject to levy under an earnings withholding order shall not exceed the lesser of the following amounts: a) Twenty-five percent of the individual's disposable earnings for that week; or, b) The amount by which the individual's disposable earnings for that week exceed 40 times the state minimum hourly wage in effect at the time the earnings are payable. 2)Defines "disposable earnings" as the portion of an individual's earnings that remains after deducting all amounts required to be withheld by law. 3)Specifies the multipliers to be used to determine the maximum amounts of disposable earnings subject to garnishment that are proportionally equivalent for pay periods of different intervals, other than a weekly pay period, and requires the Judicial Council to provide instructions on how to compute these amounts in the Employer's Instructions document required under existing law. The Senate amendments replace the term "garnishment" with the equivalent term "levy under an earnings withholding order" in order to maintain consistency in terminology used throughout the section of law amended by this bill. AB 1775 Page 2 EXISTING LAW : 1)Provides that the amount of earnings of a judgment debtor exempt from the levy of an earnings withholding order, except as specified, shall be that amount that may not be withheld from the judgment debtor's earnings under federal law in Section 1673(a) of Title 15 of the United States Code (U.S.C.). 2)Provides that the maximum part of the aggregate disposable earnings of an individual for any work week which is subject to garnishment may not exceed 25% of his or her disposable earnings for that week, or the amount by which his or her disposable earnings for that week exceed 30 times the federal minimum hourly wage in effect at the time the earnings are payable, whichever is less. AS PASSED BY THE ASSEMBLY , this bill was substantially similar to the version approved by the Senate. FISCAL EFFECT : None COMMENTS : This bill, sponsored by the Western Center on Law and Poverty, seeks to increase the so-called "garnishment floor" in California-that is, to increase the minimum amount of a judgment debtor's weekly earnings that are exempt from wage garnishment as a matter of law. Currently, California law conforms with federal law, 15 U.S.C. Section 1673(a), in establishing this amount at 30 times the federal minimum wage. This bill seeks to break lockstep with federal law and increase this amount in California law to 40 times the California minimum wage. Because the current federal minimum wage is $7.25/hour and the current California minimum wage is $8.00/hour, this bill would effectively increase the garnishment floor in California from $217.50 (i.e., 30 x $7.25) to $320 (i.e., 40 x $8.00). According to the author, the working poor in California simply cannot make ends meet if their wages are garnished to satisfy a consumer debt because existing law only protects $217.50 per week from wage garnishment. The author states, "In nearly every county in California, $217.50 a week is not even considered a living wage for a single adult without children. AB 1775 AB 1775 Page 3 modestly raises the garnishment floor with the result being that the first $320 of a person's weekly wages is exempt from garnishment. This reasonable increase is still below what is considered a living wage for a single Californian, but for a family trying to survive on a minimum wage salary, it could mean the ability to cover both groceries and medicine, or both rent and clothing." Under existing law, the first 30 hours of a person's federal minimum wage earnings (currently at $7.25/hour) are exempt from garnishment. Instead, this bill applies the California minimum wage instead (currently $8.00/hour) and exempts the first 40 hours of wage earnings. Under existing law, the creditor may garnish either the entire amount of weekly earnings between the floor ($217.50) and 40 times the federal minimum wage ($290), or a maximum of 25% of the earnings if they exceed the $290 figure-whichever amount is less. Although this bill would raise the garnishment floor, the bill preserves the proportionately equivalent formula for determining the amount to be withheld-all arising from using the new garnishment floor of $320 in the appropriate calculations. The existing "Employer Instructions" form (Judicial Council form WG-002) contains a table that is intended to help employers determine the correct amount of earnings to withhold based on the amount of disposable earnings and the length of the employee pay period. For reference, the table below reflects the updated amounts that would become effective if this bill were to become law in its current form. TABLE 1: California minimum wage: $8.00 per hour ----------------------------------------------------------------- | PAY | Daily | Weekly |Every Two | Twice a | Monthly | | PERIOD | | | Weeks | Month | | |----------+----------+---------+----------+----------+-----------| |DISPOSABLE|$0 - $320 | $0 - |$0 - $640 | $0 - | $0 - | | EARNINGS | | $320 | | $693.33 | $1,386.67 | |----------+----------+---------+----------+----------+-----------| |WITHHOLD | None | None | None | None | None | |----------+----------+---------+----------+----------+-----------| |DISPOSABLE|$320.01 - | $320.01 |$640.01 - |$693.34 - | $1,386.68 | | EARNINGS | $426.67 | - | $853.01 | $924.44 | - | | | | $426.67 | | | $1,848.89 | |----------+----------+---------+----------+----------+-----------| AB 1775 Page 4 |WITHHOLD | Amount | Amount | Amount | Amount | Amount | | | above | above | above | above | above | | | $320 | $320 | $640 | $693.33 | $1,386.67 | |----------+----------+---------+----------+----------+-----------| |DISPOSABLE| $426.68 | $426.68 | $853.02 | $924.45 | $1,848.90 | | EARNINGS | or more | or more | or more | or more | or more | |----------+----------+---------+----------+----------+-----------| |WITHHOLD | Maximum | Maximum | Maximum | Maximum |Maximum of | | |of 25% of | of 25% |of 25% of |of 25% of | 25% of | | |Disposable| of |Disposable|Disposable|Disposable | | | Earnings |Disposabl| Earnings | Earnings |Earnings | | | | e | | | | | | |Earnings | | | | ----------------------------------------------------------------- Because existing California law incorporates by reference the federal rule and formula for calculating earnings to be withheld, the bill establishes a new California rule to: 1) adopt the federal definition of "disposable earnings"; and, 2) specify the mathematical multipliers that are used to calculate equivalent amounts when converting weekly earnings into equivalent figures for pay periods other than every week. Finally, at the request of Judicial Council, this bill delays operation of these provisions until July 1, 2013, in order to give the Council more time to update all relevant wage garnishment forms. The California Association of Collectors (CAC) writes in opposition, "This bill is premature . . . and undermines the fundamental principles of personal responsibility, and also undermines the business community's ability to provide credit for goods and services by removing important tools necessary to enforce legitimate and undisputed financial obligations." CAC also asserts its long-standing position that exemptions from wage garnishment are bad public policy because they simply allow debtors to avoid paying creditors for goods or services already rendered, in cases where a court has already issued a judgment to satisfy a valid debt. Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334 FN: 0004237 AB 1775 Page 5