Protected earnings are only applicable to employees who pay child support.
When deducting child support from an employee’s pay, the maximum amount of child support that can be deducted is 40% of the employee’s net earnings.
Protected earnings are usually only affected if you’re paying an employee less than their usual pay, for example, if they take unpaid leave.
Protected earnings only apply to child support. Other deductions should still be made even if these add up to more than 40% of their pay.
Workings
Weekly gross pay = $1,250.
Tax code: M.
PAYE = $259.89.
ACC earners’ levy = ($1,250 × 1.53%) $19.12.
Net earnings = $1,250 − $259.89 + $19.12 = $1,009.23.
Maximum child support that could be deducted is 40% of $1,009.23 = $403.69.
Example 1
John is liable for payments of $70 child support each week.
John’s weekly wage $420.00.
PAYE deducted (M tax code) $61.08.
ACC earners’ levy $6.42.
Net earnings $365.34.
40% of $365.34 is $146.14.
Because $70 is less than 40% of John’s net pay ($146.14) the full amount of child support can be deducted.
Example 2
John has had three days leave without pay in a week.
John’s reduced wage $168.00.
PAYE deducted (M tax code) $20.21.
ACC earners’ levy $2.57.
Net earnings $150.36.
40% of $150.36 is $60.14.
Because $70 is more than 40% of John’s net pay ($60.14) the full amount of child support cannot be deducted, otherwise John would be left with less than 60% of his net pay. Any other deductions, like, student loan deductions, would still have to be taken out of John’s remaining pay.