Last year, New York amended its wage deduction legislation to greatly expand the deductions that can lawfully be made from employees’ pay. In addition to statutory deductions and deductions for health and welfare plans, which have traditionally been permissible, New York employers are now allowed to make deductions for the benefit of the employee.

The changes became effective in November 2012, but under the new law the deductions can be made only in accordance with regulations issued by the State Department of Labor. Draft Regulations have recently been issued and New York employers should start planning now on how to bring their procedures and processes on pay deductions into line.

  • Deductions for the benefit of the employee: The New York Labor Law sets out numerous allowable deductions “for the benefit of the employee”. The Regulations seek to clarify what deductions will be considered to be “for the benefit of the employee”, including health and welfare benefits, contributions to bona fide charitable organizations and pensions and retirement benefits. They also warn against deductions which are for the “convenience” of the employee, but not his “benefit” e.g. cashing an employee’s payroll cheque and charging a fee. The Regulations would replace the current “10% rule” which caps deductions for “similar payments for the benefit of the employee” at 10% of the employee’s gross pay for the relevant pay period.
  • Deductions for overpayments: The Regulations would allow employers to make deductions for unintended overpayments due to mathematical or clerical errors without obtaining prior written authorization from the employee. They are, however, very specific about how employers should go about making any deductions, including the timing, frequency and method of recovering any overpayments. For example, an employer may only recover overpayments made in the 8 weeks prior to its issuing the necessary “notice of intent” to an employee.
  • Deductions for advances: 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”. They make it clear that if an employer provides money to an employee accompanied by interest, fees or a repayment amount consisting of anything other than the strict amount originally provided, this will not constitute an advance and cannot be reclaimed through wages. Under the Regulations, an employer and an employee must agree in writing to the timing and duration of the repayment deduction before any advance is given. Deductions may then be taken from an employee’s wages in accordance with those written terms.

What do these proposed Regulations mean for your company?

You should review the permissible deductions “for the benefit of the employee” to identify if there are additional benefits you want to offer employees through payroll deduction.

Additionally, although the Regulations have not yet been finalized, you can safely anticipate that the final Regulations will be substantially similar to the draft version. You should therefore consider developing policies, procedures and notices now that conform to the new requirements, in order to enable you to make deductions for overpayments and advances once the final version of the Regulations come into force.