As we detailed in a previous posting (available here), in September 2012, Governor Cuomo signed into law new legislation which permits employers to make additional deductions from employees’ paychecks. Among other things, the bill amended Section 193 of the New York Labor Law to authorize employers to make deductions from an employee’s wages to recover accidental wage overpayments, or to make deductions for repayment of a salary/wage advance.  Although the statute became effective on November 6, 2012, under the law, such deductions could only be made subject to regulations to be promulgated by the New York Department of Labor (“NY DOL”).  At long last, on October 9, 2013, the NY DOL issued final regulations which govern how employers can implement the new legislation.

The final regulations were adopted by the NY DOL without significant change from the proposed regulations issued in May 2013.  As such, while the final regulations address the procedures for deductions for overpayments and advances, they also provide clarification on deductions that may be taken “for the benefit of the employee.”  The final regulations are available here and became effective on October 9, 2013.

Deductions for Overpayments

Under the regulations, employers are now permitted to make deductions from an employee’s wages to recover overpayments resulting from the employer’s mathematical or clerical error.  To do this, the employer must first provide the employee with notice of its intent to make the deduction, and must do so within eight weeks of the employer’s overpayment.  While notice must be provided within eight weeks of the employer’s overpayment, the employer may spread the deductions to recover such overpayment over a six year period.  However, the employer is only permitted to make one wage deduction for such overpayment per wage payment period.

While employers are now permitted to make wage deductions for overpayments, the regulations do provide limitations on the amount of such deductions.  For instance, the regulations provide that where the overpayment is less than or equal to the net wages earned after other permissible deductions in the next wage period, the employer may recover the entire amount of such overpayment in that next wage payment.  Where the recovery of an overpayment would exceed the net wages in the subsequent wage payment, an employer’s deductions may not exceed 12.5% of the gross wages earned in that pay period, nor may they reduce the effective hourly wage below the minimum wage.

Before making any wage deductions for overpayment, the employer must provide proper notice to the employee.  Where the entire overpayment will be recovered from one wage payment, the employer must give at least three days’ notice to the employee.  For deductions that will be made on a periodic basis, the employer must give an employee a full three weeks’ notice before the deductions can commence.  The notice must contain the following information: (i) the amount overpaid in total and per pay period; (ii) the total amount to be deducted; (iii) the date each deduction will occur, followed by the amount of each deduction; and (iv) a notice informing the employee that he or she may contest the overpayment, by a date certain, and spelling out the procedure for contesting the overpayment or the terms of recovery (or the employer may provide an employee with a reference to where such procedure can be located).

Finally, the regulations also require employers to implement a procedure under which employees may dispute the overpayment and terms of recovery.  In the case of overpayments that are to be reclaimed in the next wage payment after the overpayment, an employee has two days to respond to the employer’s notice.  For overpayment recoveries exceeding one wage payment, the employee’s time to respond is increased to one week.  If an employee challenges the overpayment and uses the dispute resolution procedure detailed in the regulations, the employer may not make any deductions until at least three weeks after the dispute reaches a final determination.  An employer’s failure to afford this process to its employee will create the presumption that the contested deduction was impermissible.

Deductions for Wage Advances

The regulations also authorize employers to make deductions for wage advances given to employees. Before the advance is given, the employer and employee must agree in writing to: (i) the amount to be advanced; (ii) the amount to be deducted to repay the advance (both in total and per wage payment); and (iii) the date(s) when each deduction will be made.  Once the employer has provided the employee with the advance, the employee may not revoke the written authorization. The authorization must also include notice to the employee that he or she may contest any deduction that is not made in accordance with the terms of the written authorization.

The regulations allow employers to recover advances by making wage deductions no more than once each wage payment.  However, once an employee is given an advance, no further advance may be given or deducted until the existing advance has been repaid in full.

Just as with deductions for overpayments, the regulations also require employers to implement a procedure under which employees may dispute the amount and frequency of deductions that are not permitted under the written advance authorization.  If an employee challenges the deductions under the procedure detailed in the regulations, the employer may not make any further deductions until it has replied to the employee.  An employer’s failure to afford this process to its employee will create the presumption that the contested deduction was impermissible.

Finally, it is worth noting that under the regulations, any provision of money that is accompanied by interest or fees is not considered an advance and, therefore, cannot be reclaimed through wage deductions.  As such, employers must ensure that any advances made to employees, that the employer wishes to recover through wage deductions, is not accompanied by any interest or fees.

Deductions “for the Benefit of the Employee”

The regulations also provide additional clarification regarding the types of deductions which may be taken by the employer “for the benefit of the employee.”  Under Section 193, employers are allowed to make certain enumerated deductions that are expressly authorized in writing by the employee and are “for the benefit of the employee.”  These enumerated deductions include, among other things, deductions for insurance premiums and prepaid legal plans, pension or health and welfare benefits, contributions to a bona fide charitable organization, dues or assessments to a labor organization, discounted parking or transit payments, fitness center or gym membership dues and cafeteria and vending machine purchases made at the employer’s place of business.

Moreover, employers are also allowed to deduct payments that are “similar to” those specifically enumerated in Section 193.  The regulations provide that payments made for the benefit of the employee will be considered to be “similar to” if they fall within one of the following categories: health and welfare benefits, pensions and retirement benefits, charitable benefits, representational benefits, transportation benefits, and food and lodging benefits.  Payments for benefits not falling within one of these categories will not be considered “similar to” the allowed deductions enumerated in Section 193 and, therefore, are not permitted.

In addition to providing guidance on the definition of “similar to,” the regulations also state that certain types of deductions are not permissible under Section 193.  In particular, the following categories of deductions are not permissible: repayment of loans, advances, and overpayments that are not 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; contributions to political action committees, campaigns, and similar payments; and fees, interest, or the employer’s administrative costs.

Conclusion

As a result of the issuance of the final regulations, employers can now utilize the legislation signed by Governor Cuomo in September 2012.  However, before doing so, employers should create or update their internal policy concerning wage deductions to ensure that they comply with the requirements set forth in the regulations.