Heeding the calls for change from many in the New York business community, Governor Cuomo has signed an amendment to New York’s Labor Law regarding permissible wage deductions. The new legislation (the “Amendment”) deals primarily with changes to Labor Law 193 (“Section 193”), and greatly expands the type of wage deductions an employer may take with an employee’s written consent. The following is a summary of the current Section 193 and describes how the Amendment will affect wage deductions after it takes effect on November 6, 2012. Please note that all private sector employers in New York are subject to Section 193, regardless of size.
Wage Deductions Under Prior Section 193. Prior to the Amendment, employers were permitted to take deductions from an employee’s wages only if the deductions were expressly authorized by the employee, benefitted the employee, and related to one of the following: insurance premiums, pension or health and welfare benefits, contributions to charitable organizations, payments for United States bonds, payments for dues or assessments to a labor organization, or other “similar payments.” Under the Labor Department’s regulations, employees could not waive the restrictions on wage deductions found in Section 193.
Over the past few years, the Labor Department narrowed its rulings on what is a permissible wage deduction. Most importantly, the Department took the position that wage deductions for the repayment of loans, advances, and inadvertent overpayments are not similar to other “similar payments” and were, therefore, impermissible under Section 193. The Department also prohibited employers from taking any disciplinary or retaliatory action to compel repayment of a loan or to recover an overpayment, with any repayment found to have been made through coercion or duress being considered to be an illegal wage deduction. In short, if an employee refused to repay her employer, the employer was left with either having to sue the employee or forgo recovering the loan or overpayment, even if the employee had previously consented to the deduction.
The Labor Department’s recent rulings and opinions were surprisingly restrictive and contrary to many of the Department’s prior rulings, and understandably raised the ire of many in the business community. As noted in the Statement of Support of the legislation, the law as it stands now “unduly restricts employees from deducting payments from their paychecks for valuable services provided by the employers” which is “disadvantageous to both employers and employees.”
The Amendment. The Amendment serves two primary purposes. First, employers may now, with the written consent of the employee, deduct funds from an employee’s wages for repayment of advances of salary or wages and for overpayments due to mathematical or clerical errors. However, these deductions will be subject to Labor Department limitations, which will address issues such as:
• The size of overpayments that may be recovered;
• The timing, frequency, duration and method of any recovery or repayment;
• Limitations on the periodic amount of any recovery or repayment;
• A requirement that the employer implement a procedure to dispute the amount of any recovery or repayment, or to delay commencing any recovery or repayment; and
• The terms and content of such procedure, and a requirement to provide notice of the procedure to the employee before beginning recovery, or in the case of repaying a loan or advance, at the time the loan or advance is made.
In addition, the Amendment reverses the Department’s position prohibiting certain other types of wage deductions, including:
• Tuition, room, board and fees for certain educational institutions;
• Cafeteria, vending machines and pharmacy purchases at the employer’s business;
• Discounted mass transit items, such as parking or passes, fare cards, and tokens;
• Gym membership, fitness center, or health club dues;
• Certain child-care expenses;
• Purchases made at certain charitable events; and
• Housing provided at no more than market rates by non-profit hospitals.
Before an employer may take any of these deductions, the employer must (i) provide the employee with written notice of the terms and conditions of the payment and its benefits, and an explanation of how the employer will take the deductions, and (ii) obtain the employee’s written, voluntary consent to the deduction. The employer must retain each authorization for at least six years following the termination of the employee’s employment. Employees may also consent to a deduction through a collective bargaining agreement.
Employers should be aware that deductions under these additional categories may only be made with employee consent. In addition, except for certain authorizations within an employee’s collective bargaining agreement, an employee may withdraw his authorization in writing at any time. If an employee withdraws his authorization, the employer must stop the deductions within (i) four pay periods or (ii) eight weeks after employee’s withdrawal, whichever occurs earlier. In addition, if there is a “substantial change” in the benefits of the deduction, or the manner in which the deduction will be taken, the employer must notify the employee “as soon as practicable” and prior to making any increased deduction.
Employers should note that any deductions intended to recover wage overpayments or repayments on advances will be subject to Labor Department regulations and that certain language used in the Amendment is either undefined or subject to interpretation. In addition, it is unknown at this time if the Department will prepare forms to be used with respect to wage deductions or if employers will be permitted to create their own forms. Accordingly, until such time as the regulations are issued, employers should tread carefully in making any wage deductions that are covered by the Amendment.
The changes effected by the Amendment are significant for employers. Employers will now have the latitude to implement programs that will benefit their employees, such as loans, salary advances and tuition reimbursement, knowing that the employer may be repaid through wage deductions should repayment become required under the terms of such benefits. Employers should train their human resources staff on the new law and communicate with employees about any voluntary deductions.
Please contact us if you have any questions regarding the Amendment. We will be happy to be of assistance to you.