Better Late Than Never: The New York State Department of Labor Finally Issues Regulations on Permissible Wage Deductions

Almost one year after the New York Labor Law was amended to expand the scope of permissible wage deductions, on October 9, 2013, the New York Department of Labor has finally issued regulations that allow employers to take advantage of the changes to the law.

Among the information provided in the very detailed final regulations, the New York Department of Labor clarifies what it means for a deduction to be “authorized” by an employee. Specifically, the regulations state that to be a valid authorization, it must be in writing and provide all of the terms and conditions of the deductions, its benefits, and the details of the manner in which deductions shall be made. The employee must have the opportunity to review the notice before any deductions are made or there are any changes in the amount of the deduction or a substantial change in the benefits of a deduction (which the New York Department of Labor would view as any increase to the amount of the deduction). A single written authorization can be used to cover more than one deduction.

What is probably most interesting to employers, however, are the regulations dealing with overpayments and salary advances. While last year’s amendments stated that employers would be able to take wage deductions to recoup overpayments of wages if an employee was overpaid due to a mathematical or other clerical error and for repayments on advances of salary or wages, the law specified that the New York State Department of Labor would issue regulations to address the scope of these provisions. With the recently issued regulations, employers can now start taking these deductions.

Deductions for Wage Overpayments

• Timing and Duration:  The regulations explain that an employer can only recover wage overpayments through deductions when the overpayment is discovered within eight (8) weeks after it is made, but the employer can take deductions for a period of six (6) years from the original overpayment. In other words, the regulations require an employer to learn about the overpayment within 8 weeks of when the overpayment is made, but can spread the deductions to recover the overpayment over a 6 year period.
• Limitations on Amount of Deduction:  An employer can recover the entire overpayment in the next wage payment, so long as the entire overpayment is less than or equal to net wages earned after other permissible deductions. If the overpayment is larger than the following wage payment, the deductions cannot exceed 12.5% of the gross wages earned in the wage payment and the deductions cannot bring the effective hourly wage rate below the minimum hourly wage.
• Notice of Intent to Deduct and Opportunity to Challenge:  Employers must give notice of the intent to commence deductions to recover overpayment at least three days prior to the deduction if the entire overpayment will be recovered from one wage payment, and at least three weeks prior to the first deduction if the overpayment will be paid back over time. The notice must contain the amount overpaid in total and per pay period, the total amount to be deducted, and the date(s) of the deduction. The notice must also explain how an employee can contest the overpayment and/or terms of recovery. An employer must follow a detailed procedure for handling disputes over the overpayment and/or recovery, including providing written notice of the employer’s final determination within one week of meeting with the employee to discuss the issue. As long as the employee provides timely notice of his or her objection, no deductions can be taken until the dispute procedure is concluded. Failing to follow the dispute procedure will create a presumption that the contested deduction was impermissible.

Deductions for Salary Advances

• Timing and Duration: The regulations specify that once an advance is given, no further advance may be given until the existing advance has been repaid in full.
• Limitations on Amount of Deduction: The employer may recover advances through wage deductions no more frequently than one deduction per wage payment but the amount of that recovery is determined by the written terms of the advance authorization. Importantly, the advance authorization may permit total reclamation through deduction from the last wage payment if employment ends prior to the expiration of the advance authorization.
• Opportunity to Challenge: Like with overpayments, the employer must provide employees with an opportunity to challenge a deduction that is not in accordance with the written authorization. However, an employee can only revoke the authorization prior to the actual provision of the advance by the employer.

While the regulations are cumbersome, employers can now gain some comfort around how they can lawfully take wage deductions and recover wage overpayments and salary advances without running afoul to the Labor Law. However, given how rigidly the wage deduction law had been interpreted by the New York State Department of Labor before the amendments, it would be prudent for employers to strictly comply with the regulations in making these now permissible wage deductions.