In recent years, the New York State Department of Labor ("NYS DOL") has restricted the ability of employers to make deductions from the wages of New York employees, even with employee consent. On September 7, 2012, Governor Cuomo signed a bill that amends Section 193 of the New York Labor Law ("Section 193") and reverses some of the NYS DOL's restrictive interpretations of Section 193 (at least temporarily). There are still a number of open questions about these amendments, and further guidance from the NYS DOL is needed before employers will have a full understanding of how much relief these amendments will provide. The NYS DOL has informally indicated that it plans to issue such guidance before the amendments take effect on November 6, 2012.
Section 193 Under Current Law
Under current law, Section 193 prohibits employers from making deductions from the wages of New York employees except for deductions that are (A) made in accordance with law or a 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 NYS DOL has severely restricted the types of deductions that could be treated as "similar payments for the benefit of the employee" and has issued guidance stating that an employer cannot make wage deductions for New York employees in many common situations, including, for example, to recoup inadvertent overpayments of wages, to repay a loan or advance, to pay for employee purchases at a cafeteria or other employer-sponsored store, or to pay for gym club memberships or similar fees. The NYS DOL has taken the position that such deductions are unlawful, regardless of the fact that an employee has given express written authorization for such deductions.
The Amendments to Section 193
Deductions Permitted With or Without Employee Consent
Section 193, as amended, expressly permits employers to make wage deductions to recover an overpayment of wages due to a mathematical or clerical error, and for the repayment of advances of wages provided by the employer to the employee, in each case with or without employee consent. The law specifies that such wage deductions must comply with regulations to be promulgated by the NYS DOL, which regulations will provide rules governing the size of overpayments that may be deducted, the timing, frequency, duration, and method of the deductions, limitations on the periodic amount of such deductions, a requirement to give notice to the employee prior to making such a deduction, a requirement that the employer implement a procedure for an employee to dispute the amount of a deduction or seek to delay a deduction, and a requirement that an employer notify employees of the terms and content of such a procedure prior to making a deduction (or, in the case of an advance, at the time the advance is made).
Further, the law expressly permits wage deductions made in conjunction with an employer-sponsored pre-tax contribution plan approved by the Internal Revenue Service or a local taxing authority (such as a 401(k) plan or cafeteria plan), which are deemed to be made in accordance with the provisions of law or regulation, and do not require compliance with the employee consent requirements discussed below.
Deductions Permitted Only With Employee Consent
The recent amendments significantly expand the list of permissible wage deductions under Section 193. Under the amended law, permissible wage deductions will include payments for:
- Purchases made at an employer's cafeteria or vending machine (and, in the case of hospitals, colleges, and universities, at gift shops operated by the employer)*;
- 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;
- Purchases made at events sponsored by a bona fide charitable organization affiliated with the employer (where at least 20% of the profits from the event are contributed to the charity)*;
- Purchases made from a pharmacy at an employer's place of business*;
- Tuition, room, board, and fees for pre-school, nursery, primary, secondary, and/or post-secondary educational institutions;
- Day care (or before- and after-school care) expenses; and
- For non-profit hospitals and their affiliates, payments for housing provided at no more than market rates.
* For these specified deductions and for deductions for "similar payments for the benefit of the employee," employers may not permit deductions to exceed a limit set by the employee (or, if the employee has not set a limit, then a limit set by the employer). The employer must provide the employee with access to current account information about individual expenditures within these categories of deductions and a running total of the amount that will be deducted during the next applicable pay period. Such information must be available in the workplace, free of charge, in printed form or in a form capable of being printed.
The amendments to Section 193 provide that, for all of the permissible wage deductions (including those available under current law) where employee consent is required, the deduction can be made only if (1) the employer provides the employee with written notice of all terms and conditions of the payment and/or its benefits and the details of the manner in which deductions will be made, and (2) following the receipt of such notice, the employee voluntarily gives the employer express written authorization for the deduction. If there is a substantial change in the terms or conditions of the deduction, the benefits of the deduction, or the details of the manner in which the deductions are made, the employer must give advance notice to the employee before implementing the change. Authorizations for deductions under Section 193 may also be provided pursuant to the terms of a collective bargaining agreement.
With the exception of wage deductions required or authorized by a collective bargaining agreement, an employee may revoke his or her authorization for any and all wage deductions in writing at any time. If an employee revokes an authorization for a wage deduction, the employer must cease the wage deduction as soon as practicable (and in no event later than four pay periods or eight weeks after the authorization is revoked, whichever is sooner).
Effective Date and Sunset Date
The amendments to Section 193 become effective on November 6, 2012 (sixty days after they were signed into law). These amendments have a "sunset" provision, under which they will expire three years later (i.e., November 5, 2015) in the absence of legislative action to continue them.
Recommendations for Employers
- Employers with New York employees may want to take steps in advance of November 6, 2012 in order to prepare for compliance with the amended law.
- We recommend proceeding with some caution, as many aspects of the amended law will be governed by regulations that have yet to be issued by the NYS DOL. We expect such guidance to be issued in advance of November 6, 2012.
- In the interim, employers can begin assessing the categories of wage deductions that will be permitted under the amended law to determine whether to implement any new programs or procedures (for example, implementing a discounted mass transit program or child care payment program).
- Employers should consider the administrative procedures that will be required in order to permit certain categories of wage deductions, such as cafeteria or vending machine purchases, which will require tracking employee spending and providing employees with information on outstanding account balances for such purchases. Employers should also consider what limit to set on such expenditures per pay period.
- Employers may want to prepare wage deduction notices and authorization forms containing the information required to be provided to New York employees prior to obtaining their authorization for deductions. It is possible that the NYS DOL will issue model notices for this purpose in the future, but if they do not, it will be up to employers to draft their own notices.