New York Department of Labor Update: Wage Deductions

Employers should assume nothing when it comes to New York State's current position on wage deductions.

In addition to permitting deductions "in accordance with the provisions of any law or any rule or regulation issued by any governmental agency" (such as social security and withholding taxes), Section 193 of the Labor Law permits deductions "for the benefit of employee" as long as such deductions are authorized in writing.   Over the years, the NY DOL, through opinion letters, has advised that this language permits deductions for various issues (such as wage overpayments and repayment of loans) as long as the employer obtained written consent and limited such deduction to 10% of gross wages for the payroll period.

Based on a 2006 decision of the New York State Court of Appeals, the NYS DOL now takes the position that only "monetary or supportive benefits" can be deducted from an employee's wages – i.e., "monetary" deductions are investments of money for the later benefit of the employee (e.g., deductions for insurance premiums, pension or health and welfare benefits and payments for United States bonds) and "supportive" deductions are used by someone other than the employee or employer to support some purpose of the employee (e.g., contributions for charitable organizations or payment for dues to a labor organization). The NYS DOL concluded that employers cannot make deductions from wages to recover unearned salary and/or benefits which have been paid to an employee in advance because such repayments are neither monetary nor supportive.

Examples of impermissible deductions include deductions from a final paycheck to cover used but unaccrued paid time off, deductions for loan repayments, and deductions for wage overpayments. The Department now states that such deductions are impermissible regardless of the employee's written consent. The NYS DOL also noted that such repayments are prohibited because they go directly to the employer and are exclusively for the benefit of the employer.

In addition, money that is owed to the employer may not be deducted from the employee’s paycheck. To recover such money owed by the employee, the employer should request the money from the employee without threatening disciplinary or retaliatory action. If the employee refuses to pay back the money, then the employer’s recourse is to initiate a legal action against the employee to recover the money. An employer may request that an employee repay an overpayment, as long as the employer communicates that the employee’s refusal will not result in any disciplinary action.

In every case, employers should consult with legal counsel regarding the lawful alternative actions to recover overpayments and similar types of payments to employees.

HR Works has proven to be an invaluable resource over the past ten years.