On September 7, 2012, in a rare “win” for New York employers, Governor Andrew Cuomo signed a bill expanding the type of deductions employers may make from New York employees’ paychecks. The new law took effect November 7, 2012.
The Prior Law
Prior to November 7, New York Labor Law § 193 only permitted wage deductions that (1) were explicitly required by law, a court, or a government agency, or (2) were for the benefit of the employee where the employee authorized the deduction(s) in writing.
Examples of deductions “for the benefit of the employee” included: payments for insurance premiums; pension or health and welfare benefits; contributions to charitable organizations; payments for U.S. Bonds; payments for dues or assessments for any labor organization; and other “similar” payments that are “monetary” (i.e., investments of money for the later benefit of the employee) or “supportive” (i.e., someone other than the employee or employer uses the deducted wages to support some purpose of the employee.)
In recent years, the New York State Department of Labor (NYSDOL) has interpreted § 193 narrowly, striking down as illegal a wide variety of common wage deduction practices, including deductions for the repayment of pay advances/loans and the inadvertent overpayment of wages.
The New Law
Recognizing that allowing employees to authorize a wider range of paycheck deductions actually benefits both employers and employees, the new law amends § 193 to permit deductions for wage overpayments and wage advances. The new law also expands the list of permissible deductions that “are for the benefit of the employee.”
Under the new law, employers may now recover, via wage deductions, wage advances and overpayments of wages due to the employer’s clerical or athematical error. However, employers must comply with the NYSDOL’s yet-to-be-released regulations, which will control the timing, frequency, duration and method of recovery or repayment. The regulations will also require employers notify employees in advance of how to dispute overpayments or delay the start of recovery or repayment.
The new law also allows employers to make wage deductions for a wider range of employee expenses, including: discounted parking or mass transit expenses (bus passes, tokens, etc.); gym membership dues; cafeteria, vending machine, and pharmacy purchases made at the employer’s place of business; tuition, room, board, and fees for pre-school, nursery, primary, secondary and/or post-secondary educational institutions; day care expenses; purchases made at employer events sponsored by charitable organizations (at least 20% of the profits from the event must be donated to charity); and payments for housing provided by non-profit hospitals.
Employers that plan on taking advantage of these new permissible deductions must still obtain the employee’s prior voluntary written consent, which can be accomplished via collective bargaining agreement for unionized employees. The written consent must be kept on file during the employee’s employment, and for at least six (6) years post-employment. Employers must provide employees with prior written notice of “all terms and conditions of the payment and/or its benefits and the details of the manner in which deductions will be made,” and notify employees in advance if there is a “substantial change” in the terms or conditions of the payment.
Employees are generally allowed to revoke their authorization, at which point the employer must stop making the wage deduction within four (4) pay periods or eight (8) weeks after the employee’s revocation, whichever is sooner.
Regarding deductions for employees’ charitable, cafeteria, vending machine, and pharmacy purchases, and other “similar payments for the benefit of the employee,” employers may not allow purchases to exceed a limit established by the employer and employee. Finally, employees must have access within the workplace to “current account information” detailing deductions.
Next Steps for Employers
Employers should review their wage deduction policies and determine whether they can benefit from the greater flexibility and convenience offered by the new law. Employers should ensure they understand all of the new law’s requirements before making wage deductions for the employee expenses listed above, and should refrain from making deductions for wage overpayments and advances until the NYSDOL issues its rules. Employer should also understand these changes are temporary, and that the new law will expire after three (3) years unless renewed by the legislature.