Amendment to NY Labor Law Expands Permissible Payroll Deductions and Provides for Recovery of Wage Overpayments

On September 7, New York Governor Andrew Cuomo signed legislation to amend Section 193 of the New York Labor Law (“NYLL”), offering significant relief to New York employers from the notoriously restrictive provision that had existed concerning deductions from wages.^[1] At the same time, however, the amendment imposes new requirements that apply to even the deductions that were permissible under the existing law. In addition, it provides a framework for New York employers to recover lawfully wage overpayments as well as repayment of salary advances. These changes to the NYLL become effective November 6, 2012 and will expire on November 5, 2015.

Permissible Deductions from Wages

As many New York employers are well aware, New York has long been among the most restrictive states in limiting permissible deductions from wages. Prior to the recent amendment to the law, Section 193 of the NYLL limited wage deductions to:

• those specifically allowed by law or by rule or regulation of a government agency (e.g., tax withholdings and wage garnishments for child support); and
• deductions that were both authorized in writing and for the benefit of the employee but, in any case, limited to payments for insurance premiums, pension or health and welfare benefits, charitable contributions, U.S. bonds, union dues or assessments and “similar” payments for the benefit of the employee.

Under the amendment, employees may also authorize wage deductions for the following:

• prepaid legal plans;
• purchases at events sponsored by a charitable organization affiliated with the employer where at least 20% of the profit from the event is contributed to the charity;
• discount parking;
• discount passes, tokens, fare cards and vouchers for mass transit;
• gym memberships;
• cafeteria and vending machine purchases made at the employer’s place of business;
• purchases at gift shops operated by the employer (limited to employers that are hospitals, colleges and universities);
• pharmacy purchases made at the employer’s place of business;
• tuition, room, board and fees for pre-school, nursery, primary, secondary and/or post-secondary educational institutions; and
• payments for housing provided at no more than market rates by non-profit hospitals and their affiliates.

With respect to the cafeteria, vending machine, gift shop, pharmacy and charity event purchases, the aggregate deductions in a given pay period may not exceed: (i) a maximum aggregate per-pay-period limit set by the employer; or (ii) a maximum aggregate per-pay-period limit set by the employee (which may be any amount, in $10 increments) up to the limit set by the employer. The employer may not permit any purchases within these categories that exceed the aggregate limit set by the employee (or, if the employee has not set a limit, the limit set by the employer). Further, the employee must be given access to, in printable form, current account information detailing the individual expenditures in these categories and a running total of the amount that will be deducted from the employee’s pay in the next applicable pay period. The employer may not charge employees for accessing or printing this account information.

New Requirements for Permitted Deductions

While the amendment to Section 193 is expected to be generally well-received by New York employers, it should also be noted that the amendment imposes new requirements that will apply not only to the new categories of deductions, but also the deductions that were already permitted (i.e., insurance premiums, pension benefits, etc…). Prior to the amendment, the central administrative requirement for making a permitted deduction was that the employee’s authorization needed to be in writing and kept on file at the employer’s premises. The amendment to Section 193 now expressly also requires the following:

• The employee’s authorization must be voluntary.
• The employer must provide the employee with a written notice of all the terms and conditions of the payments and/or its benefits and details of the manner in which deductions will be made. This notice must be provided to the employee prior to the employee giving his or her written authorization for the deduction.
• Whenever a substantial change is made to the terms or conditions of the payment (including the amount of the deduction or a substantial change in the associated benefits of the deduction), the employer must notify the employee of the change prior to implementing the change. Although not expressly stated, employers are well advised to provide such notices of changes in writing.
• The written authorization for the deduction must be kept on file at the employer’s premises for the period of the employee’s employment plus six years after the employment ends.
• The employee may, at any time, revoke in writing the authorization for any and all wage deductions (except for deductions required or authorized in a collective bargaining agreement). Once such authorization is revoked, the employer must cease the wage deduction(s) as soon as practicable but, in no event, more than four pay periods or eight weeks – whichever is sooner – after the withdrawal of authorization.

Finally, the amendment provides that, despite the aforementioned requirements, the employee authorization for the deductions may also be given to the employer pursuant to the terms of a collective bargaining agreement.

Recovery of Wage Overpayments and Repayment of Wage Advances

Although, under the existing law, some authority existed to support an argument that Section 193 did not prohibit the recoupment of wage overpayments, the Department of Labor held the position that such deductions were unlawful.^[2]  The amendment to Section 193 specifically provides for deductions to recover wage overpayments that are due to a mathematical or clerical error by the employer.

Similar to the issue of recoupment of overpayments, the prior inability of New York employers to make deductions from wages as repayment of wage advances was a source of frustration for many. The amendment to Section 193 also provides for deductions to repay wage advances made by the employer to the employee.

Here, however, the amended Section 193 specifically calls for the Commissioner of Labor to craft regulations that must be complied with when an employer makes any such deduction to recoup wages. The Commissioner is directed to address in these regulations, at a minimum, the following:

• in the case of recovery of overpayments, the size of overpayments that may be covered;
• the timing, frequency, duration and method of deduction(s);
• limitations on the periodic amount of the deduction(s);
• a requirement that a notice be provided to the employee prior to the commencement of the deduction(s);
• a requirement that the employer implement a procedure for disputing the amount of the overpayment or wage-advance repayment, or to delay the deduction; and
• a requirement that the employer provide the employee with notice of the dispute procedure: (i) in the case of overpayment, prior to commencing the deduction(s); and (ii) in the case of wage-advance repayment, at the time the loan is made.

As of this writing, the Commissioner of Labor has not yet issued the regulations.

Conclusion

Many New York employers will cheer the expansion of permissible deductions under Section 193. Still, they should proceed cautiously. While expanding the types of deductions permitted, the amendment also imposes requirements that pertain even to those limited deductions that were already allowed. Further, while the amendment creates a long-overdue mechanism to recover wage overpayments and provide for the repayment of wage advances, a true understanding of the new landscape will have to await the Commissioner of Labor’s issuance of the relevant regulations. Lastly, this change in the law is temporary and will expire three years from its effective date. An extension of these amendments beyond that time will require action by the legislature. If the legislature does not act, Section 193 will revert to its current version in November 2015.