The regulations provide employers with specific guidelines for wage deductions, including those for overpayments and advances.

On October 9, the New York Department of Labor’s (NYDOL’s) final wage deduction regulations became effective. The regulations follow on the heels of a September 2012 amendment of section 193 of the New York Labor Law (NYLL), which clarified and broadened the scope of permissible deductions from wages. Most notably, the new regulations provide guidelines for deductions resulting from inadvertent overpayments to employees and for salary and wage advances. The new regulations also attempt to clarify statutory language in section 193(b) of the NYLL, which limits deductions to those that are “similar” to those enumerated in section 193 and requires deductions to be authorized by and “for the benefit” of the employee. Employers should evaluate current wage deduction processes and consider making changes, as appropriate, to comply with the new regulations.

Permissible Deductions for Overpayments Resulting from Employer Error

The 2012 amendment explicitly permitted, for the first time, employers to make wage deductions for overpayments that were “due to a mathematical or other clerical error by the employer.” The new regulations provide detailed guidelines for permissibly making this type of deduction.

First, prior to making any deductions for overpayment, the employer must provide the employee with (1) notice of the intent to commence the deductions, which must include the amount overpaid, the total amount to be deducted, and the date each deduction shall occur, and (2) notice that the employee may contest the deduction, including the date and procedure (or reference thereto) by which the employee may do so. The employer must also implement a procedure to permit the employee to dispute the overpayment and terms of recovery and/or to seek a delay in the recovery. The regulations provide further requirements concerning the dispute resolution procedure, and there is a presumption that the contested deduction is impermissible if the proper procedure is not followed.

An employer may only recover overpayments made in the eight weeks prior to issuance of the notice but may make deductions to recover such overpayments for six years from the overpayment. Given the strict time limits imposed by the regulations, employers should be cognizant to identify overpayments and promptly issue notices of intent if they choose to use wage deductions to recover those payments. Where the entire overpayment is less than or equal to the net wages earned in the next wage payment, notice must be given three days prior to the deduction, and the employer may recover the entire amount of such overpayment in the next wage payment. For all other overpayments, notice must be given three weeks prior to the deduction, and the deduction may neither exceed 12.5% of the gross wages earned in the wage payment nor reduce the employee’s hourly wage below minimum wage.

Permissible Deductions for Wage or Salary Advances to Employees

The NYLL also now permits employers to deduct for wage or salary advances made to employees. 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.” Other types of payments—those that include interest, fees, or a repayment amount different than the amount provided—are not considered advances and, thus, do not fall within the scope of this exception.

Prior to making any deductions for an advance, the employee must provide the employer with written authorization for the deductions, and, in return, the employer must provide the employee with notice that the employee may contest deductions that are not in accordance with the terms of the written advance authorization. The employer must also implement a procedure to allow the employee, after receiving the advance, to dispute the amount and frequency of the deduction (as not being in accordance with the terms of the written advance authorization). The regulations provide further requirements concerning the dispute resolution procedure.

The regulations permit total recovery of all previously authorized advances on the last wage statement “should employment end prior to the expiration of the other terms,” provided that the written terms of the advance authorization so provide. Whereas authorization for wage deductions that fall within the other exceptions may be revoked in writing at any time by the employee, authorization for wage deductions to repay an advance may only be revoked prior to the actual disbursement of the advance by the employer.

Under the regulations, an employer is also obligated to retain communications regarding deductions for at least six years after an employee’s period of employment ends.

Scope of “Benefit” for Wage Deductions Made for the “Benefit of the Employee”

The regulations also attempt to clarify language from section 193(b) of the NYLL that many have found unclear or ambiguous. That section permits deductions that are “specified by, or similar to those specified by, Section 193 of the [NYLL], authorized by and for the benefit of the employee.” The 2012 amendment provided examples of such specified deductions, noting that they must benefit the employee by providing financial or other support to the employee, his or her family, or a charitable organization designated by the employee. These examples include the following:

• Health and welfare benefits (e.g., health club and/or gym membership dues or day care expenses)

• Pension and savings benefits (e.g., payments made for pension benefits)

• Charitable benefits (e.g., contributions to a bona fide charity)

• Representational benefits (e.g., labor organization dues)

• Transportation benefits (e.g., employee parking or mass transit passes)

• Food and lodging benefits (e.g., purchases made at an employer’s cafeteria)

The new regulations note that the examples provided are not exclusive. The regulations also outline those deductions that the NYDOL deems impermissible, including the following categories and examples:

• Repayments of loans, advances, and overpayments that are not otherwise in accordance with the regulations

• Employee purchases of tools, equipment, and attire required for work

• Recoupment of unauthorized expenses

• Repayment of employer losses, including for spoilage and breakage, cash shortages, and fines or penalties incurred by the employer through the conduct of the employee

• Fines or penalties for tardiness, excessive leave, misconduct, or quitting without notice

• Contributions to political action committees and/or campaigns and similar payments

• Fees, interest, or the employer’s administrative costs

The regulations also point out that the “convenience of the employee” is not a sufficient basis to satisfy the NYLL’s “benefit of the employee” requirement.

Implications

The new wage deduction regulations provide additional clarification and examples of permissible deductions for the benefit of employees as well as specific guidelines for employers regarding notification, authorization, and procedures for seeking deductions of inadvertent overpayments and advances of salary or wages. Employers should strongly consider drafting appropriate procedures to take advantage of, and ensure compliance with, the new regulations, including processes for obtaining proper pre-deduction authorization in writing and for adhering to the time, duration, frequency, recovery method, and dispute mechanism set forth by the new regulations. Employers seeking to utilize these processes must ensure that their procedures for informing employees of these deductions are compliant and that there is an adequate process in place for review and appeal.