On November 6, 2012, sweeping changes to Section 193 of the New York Labor Law (“NYLL”) went into effect, changing the landscape for permissible wage deductions for New York employers. The Amendment expanded the list of permissible deductions that may be made with employee consent.  It also expressly permitted employers to recover an overpayment of wages due to a mathematical or clerical error, and for the repayment of advances of wages, with or without employee consent.  This later change was a significant departure from the notoriously restrictive provision of Section 193 that prevented such deduction for overpayments, even when the employee gave his or her express written authorization.  The Amendment, however, was drafted with a set expiration of November 5, 2015 and the legislature has made no move to extend it.  This means the law will revert back to its more restrictive version this week.

Under the pre-Amendment Section 193 employers are prohibited from making deductions from the wages of New York employees except for deductions that are (A) made in accordance with a law, rule, or regulation of a government agency, or (B) expressly authorized in writing by the employee, provided that such authorized deductions are limited to payments for (i) insurance premiums, (ii) pension or health or welfare benefits, (iii) charitable contributions, (iv) United States bonds, (v) union dues, and (vi) “similar payments for the benefit of the employee.”  The New York State Court of Appeals has defined “similar payments” as those that are either an investment of money for the later benefit of the employee or used by someone other than the employee or employer to support some purpose of the employee.  This list of permissible deductions is far more restrictive then what New York employers have enjoyed for the past three years, which included, among other things, fitness center, health club, and/or gym membership dues; discounted parking or discounted passes, tokens, fare cards, vouchers, or other items that enable an employee to use mass transit; tuition, room, board, and fees for pre-school, nursery, primary, secondary, and/or post-secondary educational institutions; and day care (or before and after-school care) expenses.

With regard to recoupment for overpayments, the impending pre-Amendment restrictions are even more severe.  The NYDOL, in an opinion letter dated January 21, 2010 (RO-09-0152) expressly determined that deductions for overpayments, salary advances and items other than those specifically listed in pre-Amendment Section 193 are not permitted, even if the employee consents to the deduction in writing.  Also, because Section 193 prohibits an employer from requiring an employee to make any payment by separate transaction that would not be permitted as a deduction, the NYSDOL has also held that employers cannot require that employees pay back any overpayment by separate transaction.  Thus, under the pre-Amendment version of Section 193, the NYSDOL says that an employer has only two options for recovering an overpayment: 1) the employer can “request” that the employee pay back the overpayment, provided it “clearly communicates that the employee’s refusal will not, in any way, result in any form of disciplinary or retaliatory action;” or 2) the employer can sue the employee in civil court.

Steps for Employers:

In light of the impending move back to the pre-Amendment standards, employers should take the following steps to keep their wage deduction practices in compliance with Section 193:

1. Review the items automatically deducted from wages with the authorization of the employee.  Deductions made accordance with a law, rule or regulation, or for insurance premiums, pension or health or welfare benefits, charitable contributions, United States bonds, and union dues are permissible.  So are deductions for an investment of money for the later benefit of the employee or used by someone other than the employee or employer to support some purpose of the employee.  Any other deductions should be halted, even if the employee has given consent.

2. Eliminate practices or policies whereby overpayments are deducted from wages, or where employees are required to reimburse the employer by separate transaction in order to avoid disciplinary actions.

3. If an employer finds that it has overpaid an employee, the employee should be informed of the overpayment, and Human Resources should request that the employee reimburse the business by making a separate payment to the employer.

4. The employer should conduct an investigation into when the employee first knew of the overpayment.  The NYSDOL has written that if the employee knew of the overpayment but did not inform the employer timely, then the employee can be disciplined.