The New York State Department of Labor ("NYS DOL") recently published proposed regulations addressing employer deductions from employee wages. These proposed regulations clarify a number of issues related to wage deductions, with a particular focus on the procedures that employers must follow with respect to deductions to recoup wage overpayments and advances. While these much-anticipated regulations provide helpful guidance to employers, the regulations are not in final form and employers should not rely on them until they are finalized by the NYS DOL. The NYS DOL is accepting comments on these proposed regulations through July 6, 2013.

Separately, New York State recently passed legislation to gradually increase (by the end of 2015) the New York State minimum wage from the current $7.25 per hour to $9.00 per hour.

Section 193 of the New York Labor Law

As described in our prior client alert, New York Labor Law Amended to Expand Permissible Wage Deductions, Section 193 of the New York Labor Law ("Section 193") was amended to expand the types of wage deductions that are permitted under New York State law. Those amendments reversed some of the NYS DOL's restrictive interpretations of Section 193 (at least temporarily, as those amendments are scheduled to sunset on November 5, 2015 in the absence of further legislative action). Significantly, Section 193 now expressly permits employers to make wage deductions to recover overpayment and advances in certain circumstances, pending regulatory guidance from the NYS DOL. Wage Deductions Authorized by and for the Benefit of the Employee Section 193 permits employers to make certain deductions that are "authorized" by an employee and "for the benefit of" the employee. The proposed regulations set forth what constitutes sufficient "authorization" from an employee. A wage deduction is "authorized" if it is made pursuant to a collective bargaining agreement, or set forth in a written agreement between the employer and employee that is "express, written, voluntary, and informed." An authorization is "informed" if the employee has been provided in advance with written notice of all terms and conditions of the deduction, its benefits, and the details of the manner in which the wage deduction will be made.

Wage Deductions Authorized by and for the Benefit of the Employee

Section 193 permits employers to make certain deductions that are "authorized" by an employee and "for the benefit of" the employee. The proposed regulations set forth what constitutes sufficient "authorization" from an employee. A wage deduction is "authorized" if it is made pursuant to a collective bargaining agreement, or set forth in a written agreement between the employer and employee that is "express, written, voluntary, and informed." An authorization is "informed" if the employee has been provided in advance with written notice of all terms and conditions of the deduction, its benefits, and the details of the manner in which the wage deduction will be made.

Wage deductions generally will be considered to be "for the benefit of" an employee if they are made for one of the following categories of benefits:

  • health and welfare benefits (including gym memberships and child-care benefits);
  • pension and savings benefits (including U.S. savings bonds);
  • charitable benefits;
  • representational benefits (including union dues and assessments);
  • transportation benefits (including parking and mass transit passes); and
  • food and lodging benefits (including cafeteria and vending machine purchases).

Prohibited Wage Deductions

The proposed regulations provide examples of wage deductions that are explicitly prohibited, as follows:

  • repayments of loans, advances, and overpayments that are not in accordance with NYS DOL regulations;
  • employee purchases of tools, equipment, and attire required for work;
  • recoupment of unauthorized expenses;
  • repayment of employer losses (such as for spoilage or breakage, or penalties incurred by an employer as a result of the employee's conduct);
  • fines or penalties for misconduct or quitting without notice;
  • contributions to political action committees, campaigns, and similar payments; and
  • fees, interest, or the employer's administrative costs.

Wage Deductions for Overpayments

Section 193 permits wage deductions for a prior overpayment of wages by the employer when such overpayment is due to a mathematical or other clerical error by the employer. The proposed regulations set forth specific rules that must be followed by the employer before such a deduction may be made.

  • Prior to making any wage deduction to recover an overpayment, the employer must provide the employee with a "notice of intent" to make such a deduction. The proposed regulations detail the required content of such a notice. Note that an employer may only recover overpayments that were made to the employee during the eight weeks immediately before the date on which the employer provides the employee with this notice.
    • This notice must be provided either three days or three weeks in advance of the deduction being made, depending on whether the entire overpayment will be reclaimed in one or more deductions.
  • If the amount of the overpayment exceeds the employee's net wages for the next wage payment, the wage deduction to recover the overpayment may not exceed 12.5% of the gross wages earned in that wage payment (and the deduction cannot reduce the employee's effective hourly rate below minimum wage).
    • If the amount of the overpayment does not exceed the employee's net wages for the next wage payment, the entire amount of the overpayment may be deducted from that wage payment.
  • The employer must implement a procedure for an employee to dispute an overpayment and/or the terms of recovery of the overpayment by the employer, including one week for the employee to respond to the employer's "notice of intent," one week for the employer to reply to the employee's response, an opportunity for the employee to meet with the employer to discuss any open issues regarding the overpayment, and (finally) a final written determination by the employer.
    • While an employee takes advantage of this procedure, and for three weeks after the procedure has been completed, no deductions to recoup the overpayment may be made.
  • If an employer fails to follow the procedures set forth in the proposed regulations, it will create a presumption that the contested deduction was impermissible.

Wage Deductions for Advances

Section 193 also permits wage deductions for a prior advance of salary or wages made by an employer to an employee. The proposed regulations set forth specific rules that must be followed by the employer before such a deduction may be made.

  • The employee must authorize, and the employer and employee must agree to, in writing, the timing and duration of the wage deductions for repayment of the advance before the advance is given by the employer. The proposed regulations detail the information that must be included in this authorization. This authorization may only be revoked by the employee before the advance is given by the employer. Once an advance is given, the authorization is no longer revocable and no further advance may be given by the employer until the existing advance has been repaid in full.
  • The employer must implement a procedure for the employee to dispute the amount and frequency of wage deductions that are not made in accordance with the written authorization. An employee receiving an advance must be given written notice of this procedure. While an employee takes advantage of this procedure, no deductions to recoup the advance may be made.
  • If an employer fails to follow the procedures set forth in the proposed regulations, it will create a presumption that the contested deduction was impermissible.

Employers Should Proceed With Caution Pending Issuance of Final Regulations

While these proposed regulations shed light on the procedures that are likely to be implemented by the NYS DOL and required of New York State employers, employers should proceed cautiously and not rely on the regulations until the NYS DOL publishes them in final form. The NYS DOL is accepting comments on the proposed regulations through July 6, 2013.

In the interim, we would be happy to answer any questions you may have about the proposed regulations and help your company begin to prepare appropriate policies and procedures for wage deductions for your company's New York employees.

Increase to the New York State Minimum Wage

New York State recently passed a law to increase the minimum wage. The New York State minimum wage is currently $7.25 per hour, which is the same as the federal minimum wage. Pursuant to recent legislation, the New York State minimum wage will increase to $8.00 per hour on December 31, 2013, then to $8.75 per hour on December 31, 2014, and finally to $9.00 per hour on December 31, 2015 (subject to certain exceptions, such as for tipped workers, who are subject to industry-specific rules).