New York Department Of Labor Issues Final Wage Deduction Regulations

As we previously posted, last year New York amended New York Labor Law §193 (“NYLL”) to expand the scope of permissible deductions an employer may make from an employee’s paycheck.  Even though the amendments became effective November 6, 2012, the New York Department of Labor just recently issued its final regulations, effective October 9, 2013.  A copy of the final regulations can be found here. 

It is unlawful for an employer in New York to make a deduction from wages, unless the deduction is specifically permitted by NYLL §193.  Consistent with §193 of the Labor Law, the regulations specify four categories of permitted deductions:

1. Deductions in accordance with any law, rule, or regulation;
2. Deductions authorized by and for the benefit of the employee;
3. Deductions to recover an overpayment of wages caused by a mathematical or other clerical error; and
4. Deductions for the repayment of advances of salary or wages.

Because deductions “in accordance with law” are self-evident and include deductions for taxes, child support, and wage garnishments, we will only discuss the remaining three categories of permitted deductions in this post.

Authorized Deductions for the Benefit of the Employee

NYLL §193(1)(b) identifies a number of specific deductions that are permissible when “expressly authorized in writing by the employee” and which are for the “benefit of the employee.”  These deductions include such things as payments for insurance premiums, health and welfare benefit plans, union dues, fitness center and/or gym membership dues, and day care, before-school and after-school care expenses. 

Under the regulations, a deduction is authorized only if the authorization is in writing.  Also, the employee’s authorization must be express, voluntary, and informed.  To satisfy these requirements, the employee must be given written notice of the terms and conditions of the deduction, the benefits of the deduction, and the details of the manner in which the deduction will be made.  The notice must be given before: (i) the execution of the initial authorization; (ii) any deduction is made; or (iii) a substantial change in the benefits of a deduction occurs.  Significantly, the regulations state that an increase in the amount of deduction is presumed to be a substantial change for purposes of the notice requirement.

Deductions are considered to be for the “benefit of the employee” when they are for one of the items enumerated in §193(1)(b).  Generally, deductions benefit an employee when they provide financial or other support to the employee, the employee’s family, or to a charity and are limited to the following categories: (1) health and welfare benefits; (2) pension and retirement benefits; (3) child care and educational benefits; (4) charitable benefits; (5) dues and assessments; (6) transportation; and (7) food and lodging.  The regulations provide that convenience of the employee is not a benefit and that deductions resulting in a financial gain to the employer “call into question” whether the deduction benefits the employee.

In addition to specific authorized deductions, §193(1)(b)(xiv) is a catch-all exception for “similar payments for the benefit of the employee.”  The regulations explain that for a benefit to fall within the catch-all exception, it must fall within one of the following categories: (1) health and welfare benefits; (2) pension and savings benefits; (3) charitable benefits; (4) representational benefits; (5) transportation benefits; or (6) food and lodging benefits.

Not only do the regulations explain what deductions are authorized, but they also expressly set forth several prohibited deductions.  These prohibited deductions include, but are not limited to: (1) repayments of loans, advances, or overpayments that are not performed in accordance with the regulations for such deductions (which are discussed below); (2) employee purchases of tools, equipment, or clothing required for work; (3) recoupment of unauthorized expenses; and (4) repayment of employer losses such as cash shortages, fines due to employee conduct, or damage to employer property.

Deductions for Overpayments

The regulations also set forth the method by which an employer can make a deduction from an employee’s wages to recoup overpayments caused by a mathematical or other clerical error.  To be valid the employer must give either three days (if the overpayment can be recouped in full) or three weeks (if full recoupment cannot be made in a single pay period) advanced notice of the intent to make the deduction, and implement a dispute resolution process in case the overpayment is contested by the employee.

Employers may recover through wage deductions overpayments made in the eight weeks preceding the issuance of the notice.  Deductions may be made over a period of six years from the original overpayment.  Deductions for overpayments may only be made once per pay period.

An overpayment that is less than or equal to the employee’s net wages may be recovered in its entirety from the next wage payment after the required notice.  If the overpayment exceeds the employee’s net wages, and thus cannot be recouped from a single paycheck, the deduction may not exceed 12.5% of the employee’s gross wages nor may the deduction reduce the employee’s effective hourly rate below the state minimum wage.

Deductions for Advances

Finally, the regulations set forth the method for employers to make authorized deductions for advances of salary or wages made to the employee.  The regulations define an “advance” as “the provision of money by the employer to the employee based on the anticipation of the earning of future wages.”  Significantly, any provision of money that includes interest, fees, or an obligation to repay more than the amount provided is not an advance under the regulations and cannot be lawfully recouped through a paycheck deduction.

The regulations set forth strict requirements for written authorization by the employee before any advance is made.  The authorization must specify the amount to be advanced, the amount to be deducted per wage payment, and the date(s) when each deduction will occur.  Unlike deductions for overpayments, there is no limit to the amount of the deduction for repayment of an advance so long the amount is agreed to and authorized by the employee in accordance with the regulations.

Similar to deductions for overpayments, employers must implement a dispute resolution procedure for employees to dispute any deductions not made in accordance with the written authorization.  If an employee disputes a deduction, the employer cannot make additional deductions to recoup an advance until it replies to the employee’s objection and makes any necessary adjustments.

Conclusion

Although the regulations and underlying statutory amendment grant employers greater leeway to make deductions then previously permitted, failure to comply with the regulations can carry significant liabilities.  Employers should, thus, proceed with caution and with the advice of legal counsel to ensure strict compliance with the regulations.