New York State now allows employers to make payroll deductions for inadvertent overpayment of wages

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Section 193 of the New York Labor Law proscribes an employer’s right to make deductions from its employees’ paychecks with very limited exceptions.  In November 2012, the law was amended to allow employers to make payroll deductions for the inadvertent overpayment of wages, provided the deductions were made in compliance with regulations to be promulgated by the Labor Commissioner.

Earlier this month, the Labor Commissioner promulgated the long-awaited final regulations (12 NYCRR Part 195-5.1, effective as of October 9, 2013).  Consequently, employers may now legally make payroll deductions for the recovery of wage overpayments made due to a mathematical or other clerical error by the employer, as long as the deduction complies with the following procedures:

  • The employer must provide written notice to the employee of the intent to recover the overpayment, stating the amount overpaid, the date(s) of the overpayment, the total amount to be deducted, the date(s) each deduction will be made and the deadline and procedure for contesting the overpayment (or reference to where the procedure can be found).
  • The recovery must be for an overpayment made in the 8 weeks prior to the notice required by the regulations, and can be made over a period of up to six (6) years following the overpayment.
  • If the entire overpayment is less than or equal to the net wages earned in the next wage payment, then:
    • the employer can recover the entire amount of the overpayment in “that next wage payment”
    • the notice must be provided at least three days in advance of the deduction and
    • the employee has two days to object to the deduction.
  • If the overpayment exceeds the net wages earned in the “immediately subsequent wage payment,” or if the employer has waited until after the “next” payment to send the notice (although the latter situation is not specifically addressed and only implicitly covered by the regulations), then:
  • the recovery is limited to a maximum of 12.5 percent of the gross wages
  • the deduction cannot reduce the effective hourly wage below the minimum wage
  • the notice of this deduction must be provided at least three weeks in advance of the deduction and
  • the employee has one week to object to the recovery.
  • In either case, the employer must reply within one week of receipt of employee’s response, and once the employee has started this challenge procedure, may not make any deductions due to the overpayment until the procedure has reached a final determination.
  • The employer must then provide the employee with an opportunity to meet within one week after the employer’s response.
  • The employer must provide a final determination within one week of the meeting.
  • In the event the employee raises any objection, the employer must wait for three weeks after the final determination to start making any deductions.

The failure of an employer to follow this process will result in a presumption that the deduction was improper.  Note, however, that dispute resolution provisions in collective bargaining agreements which provide at least as much protection to the employee as the above procedures will be deemed compliant with the regulations.

The new regulations also enumerate similar procedures for an employer to make wage deductions for the repayment of advances of salary or wages.  (12 NYCRR 195-5.2).  Nonetheless, certain questions remain unanswered by the regulations, such as whether an employer can make a deduction from a final paycheck as the repayment of an “advance” where an employee has exceeded his or her accrued vacation allowance.  We look forward to further guidance from the Department of Labor on this issue.