Quirky Question #207, New York Wage Deduction Law

Question:

We are a New York employer.  We had an outside vendor doing our payroll and we recently discovered several of our employees were overpaid three months in a row.   Is there anything we can do other than get the employees’ agreement to make a deduction to recoup the overpayments?  I seem to recall that many states, California comes to mind, forbid deductions except in very limited circumstances.

Answer: By David Singer and Judy Sha

David Singer

David Singer

Judy Sha

Judy Sha

First, check your contract with your outside service and see if they have an obligation to indemnify you.  You may have the ability to recoup your legal expenses and any amount the employees do not allow to be recouped.

The good news is that the New York Department of Labor’s final wage deduction regulations became effective on October 9, 2013. The new regulations provide guidelines for deductions resulting from inadvertent overpayments to employees “due to a mathematical or other clerical error” by the employer and for salary and wage advances.  However, you must act quickly and carefully comply with the regulation’s strict requirements, as there is a presumption that a deduction is impermissible if the proper procedure is not followed.

First, prior to making any deductions for overpayment, you must provide the employee with (1) 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 (2) notice that the employee may contest the deduction, including the date and procedure by which the employee may do so. The procedure must permit the employee to dispute the overpayment and terms of recovery and/or to seek a delay in the recovery.

The bad news is that you may only recover overpayments made in the eight weeks prior to issuance of the notice (even though you can agree on a repayment schedule for six years from the overpayment).  Therefore the error from three months ago cannot be recovered from the employee, but you might be able to recover from the payroll service.  Moreover, if the entire overpayment is less than or equal to the net wages earned in the next wage payment and if notice is given three days prior to the deduction, you may recover the entire amount of such overpayment in the next wage payment. For all other overpayments, you must give notice three weeks prior to the deduction, and the deduction may neither exceed 12.5% of the gross wages earned in the wage payment nor reduce the employee’s hourly wage below minimum wage.

The new regulations also permit employers to deduct for wage or salary advances defined as “the provision of money by the employer to the employee based on the anticipation of the earning of future wages.”  Prior to making any deductions for an advance, you must obtain from the employee written authorization for the deduction (this may be why you are thinking of California law as it has similar requirements) and provide the employee with notice that the employee may contest deductions that are not in accordance with the terms of the written advance authorization. You must implement a procedure consistent with the regulations to allow the employee to dispute the amount and frequency of the deduction (as not being in accordance with the terms of the written advance authorization).

The regulations permit total recovery of all previously authorized advances on the last wage statement “should employment end prior to the expiration of the other terms,” provided that the written terms of the advance authorization so provide. Whereas authorization for wage deductions that fall within the other exceptions may be revoked in writing at any time by the employee, authorization for wage deductions to repay an advance may only be revoked prior to the actual disbursement of the advance by the employer.

Finally, you must retain communications regarding deductions for at least six years after an employee’s period of employment ends.

The regulations also attempt to clarify the law which allows deductions that are “specified by, or similar to those specified by, Section 193 of the New York Labor Law authorized by and for the benefit of the employee.” The 2012 amendment provided examples of such specified deductions, noting that they must benefit the employee by providing financial or other support to the employee, his or her family, or a charitable organization designated by the employee. These examples include: (1) Health and welfare benefits (e.g., health club and/or gym membership fees or day care expenses); (2) Pension and savings benefits; (3) Contributions to a bona fide charity; (4) Representational benefits (e.g., union dues); (5) Transportation benefits (e.g., employee parking or mass transit passes); and (6) Food and lodging benefits (e.g., food purchases at an employer’s cafeteria).  Note that you cannot recover or deduct other than for these specified purposes.  Not included as a permissible deduction are deductions for repayments of loans, employee purchases of tools, equipment, and attire required for work, recoupment of unauthorized expenses or for employer losses, including for spoilage and breakage, cash shortages, and fines or penalties. Therefore, you will need to verify that the error is mathematical or clerical and was not with respect to an impermissible deduction.

As you can see, you may be able to recover overpayments inadvertently made to your employees through indemnity or pursuant to regulations – remember, you must act quickly and carefully comply with the strict regulatory requirements.  Good luck!

David Singer

About David Singer

David is an experienced litigation partner. He has served as lead litigation and trial counsel on matters involving business contracts, business torts, executive employment agreements, restrictive covenants, interference with business......

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