Employers should take comfort that the DOL has provided guidance on how to make deductions for salary advances and overpayments, which have been legal since November.
Last summer, the New York Legislature passed legislation that amended Section 193 of the New York State Labor Law and greatly expanded the number of deductions an employer may permissibly make from an employee's wages, including deductions for salary advances and overpayments. Although the statute became effective on November 6, 2012, employers hesitated to implement these new wage deductions as they were subject to New York Department of Labor ("DOL") regulations, which have yet to be enacted. On May 22, 2013, the DOL published its Proposed Rules for wage deductions under the amended Section 193.
Under the Proposed Rules, deductions for overpayments are only permitted as follows:
- Prior to making any deductions for overpayment, the employer must provide the employee with 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 notice that the employee may contest the overpayment.
- Employers 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.
- 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 not exceed 12.5% of the gross wages earned in the wage payment and cannot reduce the employee's hourly wage below minimum wage.
- Employers must implement a procedure to allow employees to dispute the overpayment and terms of recovery. There is a presumption that the contested deduction is impermissible if the proper procedure is not followed.
For deductions for salary advances, the Proposed Rules require:
- Written authorization for the deductions to be made prior to the advance being given. The authorization must include the amount to be advanced, the amount to be deducted to repay the advance in total and per wage payment and the dates when each deduction shall be taken, and notice that the employee may contest any deduction not in accordance with the terms of the written authorization.
- Deductions are not permitted for advances accompanied with interest, fees or requiring repayment of an amount different than the amount provided.
- The employer must implement a procedure that allows an employee to dispute the amount and frequency of deductions not in accordance with the terms of the written authorization. There is a presumption that the contested deduction is impermissible if the proper procedure is not followed.
- Once an advance is given, no further advance may be provided until the existing advance has been repaid in full.
The Proposed Regulations reiterate that wage deductions for the following are prohibited:
- Employee purchases of tolls, 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 or campaigns.
What This Means for New York Employers
Employers should take comfort that the DOL has provided guidance on how to make deductions for salary advances and overpayments, which have been legal since November. However, as these are Proposed Rules, employers should hesitate to make such deductions until the DOL issues its Final Rules. With the comment period on the Proposed Rules expiring on July 6, 2013, Final Rules are expected later this summer.
Employers may want to seek the assistance of legal counsel in the preparation of policies and procedures for the recoupment of loans and overpayments in accordance with the DOL's final rules.