Wages

Wages summary:

• Wages refer to the money you receive for work or services provided.

• Wages are set through an agreement between you and your employer. 

• Wages are typically subject to deductions like taxes, benefit costs, and retirement account contributions.

Wages definition and meaning

Wages are the compensation you receive for work or services rendered. They're normally based on one of three factors: tasks completed, number of hours worked, or agreed salary. Your wages come into play when you apply for a loan or rent a home. They also play a role in determining financial issues like alimony and child support.  

Key concept: Wages are the compensation for work completed during a specific period. 

More about wages

You can calculate your hourly wage by dividing hours worked by your total income for that period. For example, if you earned $4,000 in two weeks, you would divide $4,000 by the number of hours you worked during that time. It might look something like this:

• $4,000 ÷ 80 = $50

The total amount you earn is called your gross wages. After deductions are taken, you're left with net wages. Deductions may include federal, state, and possibly local taxes. They may also include benefits you pay for (like medical and dental premiums), Social Security and Medicare taxes, retirement savings, union dues, and any wage garnishments. 

The word "wages" typically applies when discussing work completed during a specific pay period, whereas "income" refers to your total earnings for the year. 

Wages: a comprehensive breakdown

One potential deduction from your wages can be garnishment. If you fail to pay a debt as agreed, garnishing your wages is one way a creditor can collect their money. Wage garnishment is a legal process that requires your employer to withhold a portion of your wages to repay the debt. Typically, garnishment comes after a creditor wins a lawsuit against you and also asks the court for permission to garnish your wages. Government agencies can garnish your wages without a court order. 

Common reasons for wage garnishment include:

• Consumer debt

• Child support

• Tax debt

• Tax levies

Under Title III of the Consumer Credit Protection Act (CCPA), the amount an employer may garnish from you in any pay period is the lesser of:

• 25% of disposable earnings, or

• The amount by which disposable earnings are 30 times greater than the federal minimum wage

The term "disposable earnings" refers to the earnings left after legally required deductions are taken. Let's say you earn $4,000 per pay period, and after deductions, you're left with $3,100. Based on Title III, here's how your employer would decide how much to garnish:

• First, they would calculate 25% of your disposable earnings ($3,100 x 0.25 = $775)

• Next, they would see how much of your disposable income is 30 times greater than the federal minimum wage. The federal minimum wage is $7.25, and 30 times that is $217.50 ($7.25 x 30). By subtracting $217.50 from your disposable earnings of $3,100, they arrive at $2,882.50. 

Title III requires that they garnish the lesser of those amounts, so your employer would begin garnishing $775 each pay period until the debt is satisfied. This amount is fixed, no matter how many garnishment orders the employer receives.