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The New York Department of Labor issued final regulations detailing how and for what purposes employers may make deductions from employee wages.  New York remains one of the toughest states in the union to legally make a deduction from an employee’s paycheck, but these regulations ease the restrictions slightly.

Generally, an employer may make deductions only to recover wage advances, to recover overpayments, to provide a benefit to the employee, or other reasons authorized or required by law.  What follows is a brief outline of the regulations, as the regulations are very detailed.  Before undertaking wage deductions, employers should carefully review these details with counsel to ensure they are in compliance.

Recovering Wage Advances and Overpayments

The regulations define an “advance” as “provision of money by the employer to the employee based on the anticipation of the earning of future wages.”  If interest, fees, or other costs are included in the advance, the principal cannot be considered an “advance,” and wage deductions are prohibited.  The employer and employee must agree on the timing and duration of the repayment and the employee must give written authorization for the deduction before the advance is given.  The advance must be repaid before any further advances or deductions can be made.

Employers may recover overpayments due to mathematical or other clerical errors.  While written authorization from the employee is not required, there are detailed restrictions on the timing, frequency, method, and amount of deductions.    The employer must provide a notice of its intent to commence deductions before doing so.

For recovery of both wage advances and overpayments, the employer must implement a dispute resolution procedure and give the employee written notice of the procedure.  If the employer does not provide a dispute resolution procedure, the employer will be presumed to have made an impermissible deduction.

Making Deductions for Employee’s Benefit

The statute lists several permissible deductions “for the benefit of the employee,” such as health insurance benefits and “similar payments for the benefit of the employee.” The regulations list six categories within which all permissible deductions must fall: (1) health and welfare benefits, (2) pension and savings benefits, (3) charitable benefits, (4) representational benefits (e.g., union dues), (5) transportation benefits, and (6) food and lodging benefits.  While this sounds like a huge opportunity to make deductions, it is limited.  Further, the regulations make clear that deducting for providing a “convenience” is not a “benefit.”  For example, an employer cannot deduct a fee for the “convenience” of cashing an employee’s paycheck.  Deductions that provide a financial gain to the employer at the expense of the employee are suspect.

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While the class of permissible wage deductions has expanded somewhat, the controlling regulations are stringent.  For example, 12-point font is needed on a deduction authorization form, all authorization forms must be kept for six years after the employee’s separation from the company, and requiring employees to make a payment rather than authorizing a deduction does not avoid these requirements.  Before you begin using these new opportunities, you should revise your practices so you are in strict compliance with these new regulations.

Brody and Associates regularly advises management on complying with state and federal employment laws including wage and hour laws.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.965.0560.