DOL Opinion Letter: Employer HSA Contributions Are Not Earnings for Wage Garnishment Purposes

On September 10, 2019, the DOL’s Wage and Hour Division (WHD) issued opinion letter CCPA2019-1 to address whether employer contributions to HSAs are considered earnings for wage garnishment purposes under the Consumer Credit Protection Act (CCPA). The letter was in response to an inquiry submitted by a firm providing human resources and payroll services to employers.

An HSA is a type of trust established to pay the qualified medical expenses of the account holder. Specifically, HSAs allow employees enrolled in HDHPs to set aside funds pre-tax to pay for future medical expenses. Employers can also contribute to employees’ HSAs and are allowed a tax deduction for these amounts. Contributed amounts are generally considered non-forfeitable.

The CCPA limits the amount of an employee’s earnings (after required withholding) that may be garnished to satisfy a debt. Earnings for this purpose are defined as “compensation paid or payable for personal services” and include wages, salary, commission, bonuses, and certain periodic retirement payments. The concern raised here is whether some employers were erroneously classifying their HSA contributions as earnings, and thus incorrectly inflating the amounts subject to wage garnishment.

Upon review of the facts provided, WHD determined that employer contributions to HSAs are not earnings under the CCPA. In reaching this opinion, the agency focused upon several factors. First, contributions already received by an HSA were viewed as similar to earnings deposited in an employee’s bank account, which are not subject to CCPA garnishment limitations. Second, WHD did not view the employer contributions as amounts paid for employees’ services because the amounts were not calculated or varied by the value of each individual’s service. Rather, the typical employer contribution was a fixed annual amount or based upon a match formula. The agency also recognized that unlike other types of earnings, HSA employer contributions did not require protection for garnishment purposes because the employee could not access the amounts other than for qualified medical expenses without being subject to income taxes and penalties.

As a result, the WHD concluded that employers should not include HSA contributions when determining an employee’s earnings subject to wage garnishment. However, this opinion may not be applicable if the employer bases the individual contribution amounts on the value of each employee’s services or offers an option for employees to receive the contributions in cash.

The letter provides a reasoned opinion regarding the classification of employer HSA contributions under the CCPA. As with any opinion letter, the response is an application of the law to the specific circumstances presented by the requester. However, the content can be insightful in terms of how the agency may view other employers’ HSA contributions under similar circumstances. Employers who contribute to their employees’ HSAs may want to consult counsel and review their payroll practices following this opinion.

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Source: NFP BenefitsPartners

Filed under: Abentras Blog

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