Whoever is threatened with wage garnishment should go on sick leave

Frequent changes to enforcement regulations that have occurred in Croatia in recent years are joined by another one effective from July 1, 2013, which will significantly impact the wage garnishment procedures that employers enforce against their employees, the administrative costs for employers, and the legal position of creditors.

This time, the novelty is not a result of legislative intervention in enforcement regulations, but rather a new Law on Mandatory Health Insurance (Official Gazette, No. 80/13). This law stipulates that as of July 1, 2013, sick leave benefits and monetary compensation for the reimbursement of costs incurred in exercising rights from mandatory health insurance are entirely exempt from garnishment. Until June 30, 2013, sick leave compensation shared the fate of wage protection, with only maternity and parental leave benefits being exempt from garnishment. From July 1, 2013, employers who pay sick leave benefits no longer act according to the Enforcement Act but according to the Law on Mandatory Health Insurance when determining the protection of these payments from garnishment.

From whom and how Protection from garnishment encompasses all forms of sick leave compensation, those paid by the employer at their own expense, benefits paid by the employer and subsequently reimbursed by the Croatian Health Insurance Institute, and benefits paid directly to the insured by the Institute. Due to the different tax treatment of sick leave compensation, the calculation and determination of the protected part of wages and wage compensation becomes complicated. Compensation for the first 42 days of sick leave is, in tax terms, equated with wages, subject to contributions and income tax, whereby the tax base is reduced by the monthly personal allowance as a non-taxable part of income, and tax is calculated on the total taxable income paid in the same month.

Sick leave benefits that the employer pays at the expense of the Institute can amount to up to 4,257.28 HRK per month unless it is a sick leave due to a work-related injury, in which case it amounts to 100 percent of the employee’s net salary, and no tax or mandatory contributions are paid on them. Although the tax treatment is different, neither sick leave compensation subject to public levies nor compensation paid as a non-taxable income may be forcibly withheld for the settlement of obligations under enforcement documents, nor should sick leave benefits be considered when determining the protected and unprotected parts of monthly wages.

Interest accrues on the debt The exemption of sick leave compensation from garnishment affects the amount of the protected part of wages and wage compensation on which garnishment is allowed up to a certain monthly amount (e.g., compensation for annual leave, paid leave, etc.), which will affect the legal position of creditors and slow down or postpone the collection of their claims. During this time, the employee accrues default interest on the debt whose forced collection is the subject of enforcement proceedings. If the employee wishes, they can provide the employer with a written statement requesting that, despite the legal protection, garnishment be enforced on the sick leave wage compensation. However, this is merely a voluntary request that the employee can withdraw at any time, and it presents an additional complication for employers as they must ensure each month whether they have a valid statement from the employee or not.

Protection from garnishment applies to the total amount of sick leave compensation, regardless of the amount being paid. The employer may not forcibly withhold from sick leave compensation for the collection of the employee’s obligations at the request of the creditor, not even for obligations related to maintenance. This applies even when the sick leave compensation is paid in an amount equal to or slightly less than the salary, ranging from 85 to 100 percent of the average salary earned in the previous three or six months, as the amount of sick leave compensation at the employer’s expense is often regulated in labor law sources. Even in cases where the monthly sick leave compensation amounts to 15 or 20 thousand HRK, the entire amount is protected from garnishment, including garnishment for the payment of alimony for child support (e.g., after divorce).

Where are the limits? Sick leave wage compensation is also protected from garnishment on monetary funds. Employees who have an open protected account should have the total amount of sick leave compensation and the corresponding part of wages and wage compensation that is protected from garnishment under the Enforcement Act transferred to a special account on which garnishment on monetary funds is not conducted.

There is no doubt that the legislator’s intentions were aimed at protecting the insured to shield them from forced debt payments while they are unable to work due to illness or another medically justified reason. The question remains whether this protection should also encompass wage compensation for the first 42 days of sick leave, which is, in tax terms, equated with wages, or whether the absolute protection of the total amount of wage compensation, regardless of the amount paid to the individual and regardless of the purpose for which forced collection is conducted, is justified. The author of this text holds the view that the legislator should have also mandated forced payment of child support and other maintenance obligations from sick leave wage compensation, up to the amount regulated by the Enforcement Act or the Family Act. Sick leave wage compensation should be protected from garnishment, but within reasonable and socially justified limits.