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Impending Changes to Section 193 of New York Labor Law: New Deduction Categories and Recoupment of Payroll Errors Permitted


Impending Changes to Section 193 of New York Labor Law: New Deduction Categories and Recoupment of Payroll Errors Permitted

July 6, 2012

It is anticipated that the State of New York will soon adopt legislation (A10875-2011/S7790-2011) that will significantly expand the types of deductions employers can take from employees’ paychecks with prior written consent. Most significantly, the amended law will now permit an employer to recoup inadvertent wage overpayments.

The New York State Assembly overwhelmingly passed bill A10875-2011 on June 21, 2012. The legislation is now awaiting expected approval in the State Senate, and Governor Cuomo has already announced that he will sign this bill into law.

As it currently stands, Section 193 of the Labor Law is extremely limited in its scope, as it only permits several narrow categories for wage deductions with prior written authorization from the employee. Section 193 presently only allows deductions for payments for dues or assessments for labor organizations; contributions to charitable organizations; payments for insurance premiums and other pension, health, and welfare type plans; and payments for U.S. bonds. The law further gives severely limited latitude by permitting deductions which do not exceed 10 percent of the employee’s pay in the payroll period and which are for a purpose “similar” to the ones enumerated above.

Labor Law Section 193 currently reads:

§ 193. Deductions from wages.

1. No employer shall make any deduction from the wages of an employee, except deductions which:

a. are made in accordance with the provisions of any law or any rule or regulation issued by any governmental agency; or

b. are expressly authorized in writing by the employee and are for the benefit of the employee; provided that such authorization is kept on file on the employer’s premises.    Such authorized deductions shall be limited to payments for 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, and similar payments for the benefit of the employee.

2. No employer shall make any charge against wages, or require an employee to make any payment by separate transaction unless such charge or payment is permitted as a deduction from wages under the provisions of subdivision one of this section.

3. Nothing in this section shall justify noncompliance with article three-A of the personal property law relating to assignment of earnings, nor with any other law applicable to deductions from wages.

Prior to the New York Court of Appeals ruling in Angello v. Labor Ready, Inc., 7 N.Y.3rd 579, 586 (2006), the New York Department of Labor had issued opinion letters that indicated that in some circumstances, an employer could recover erroneous wage overpayments through a payroll deduction in the next pay period. However, on January 21, 2010, the Department of Labor issued a new opinion letter (RO-09-0152), overruling the prior opinion letters in light of the Angello ruling and making it clear that employers are banned from making deductions from an employee’s pay for overpayments, which makes it very difficult for employers to recover these funds without instituting legal action, particularly if an employee has terminated employment with the company.

The amendments included in the impending legislation should provide some much-needed relief to employers that have struggled with the Department of Labor’s and courts’ strict adherence to the limited types of deductions permitted under labor Law Section 193.

The provisions in the amendments that will be most useful to employers are the sections of the revised law that would permit wage deductions related to repayment of salary advancements, loans, and wage overpayments. There will be limits on the amount of these deductions that will be set forth in regulations to be promulgated by the Commissioner of Labor. The regulations will address issues such as the types of payments contemplated by this revised section; the timing, duration, frequency, and method of repayment or recovery; limitations on the periodic amount of recovery or repayment; and notice to employees before beginning any wage repayment or recovery which would include mechanisms for disputing any overpayments or challenging the start date of any recoupment or repayment.

The amendments to Section 193 of the Labor Law will better reflect the types of deductions employees are routinely allowed to authorize in other states such as health club memberships, mass transit tickets, day care expenses, and food and similar items purchased at the workplace. Amended Section 193 would require that the aggregate amount of these purchases during a pay period not exceed a maximum amount to be set by the employer, in addition to a maximum amount to be set by the employee. If the purchases exceeded the lower of the two maximums, the deduction would not be permitted. Under this revised law, employers would be obligated to provide to the employee detail on the purchases and the amount of the purchases that would be deducted from the employee’s next paycheck.

Unless renewed or extended by future legislation, these amendments will automatically expire three years following its adoption.

Governor Cuomo is in support of the amendments and it is anticipated that he will sign this bill into law in the near future. The changes will take effective 60 days after enactment. In the meantime, employers should start to think about how these new changes may impact payroll processing.

If you have questions about how this may impact your business, please contact: