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Making paycheck deductions in New York is dangerous business

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in Compensation and Benefits,Employment Law,Human Resources

by John M. Bagyi and John Ho, Esqs.

When an employee owes the company money, it may be tempting to simply deduct it from his or her next paycheck. But in New York, that can be a big mistake.

Over the past couple of years, the New York State Department of Labor (NYSDOL) has issued several opinion letters that significantly narrow its interpretation of New York Labor Law Section 193, the law governing when and how employers may make deductions from employee wages.

The NYSDOL’s new opinion ­letters state the position that a deduction from wages is not permissible unless it is similar to instances expressly recognized as legal in the statute. That means the deductions must be akin to employee payments for health and welfare benefits, insurance premiums and retirement investments.

That interpretation is dramatically different from the NYSDOL’s his­tori­cal focus on whether the deduction was for the “benefit of the employee.”

Based on the newer standard, NYSDOL has rejected suggestions that an employer may make deductions from wages to cover such things as an overpayment of wages, parking charges or wage-linked card purchases of food at an employer-subsidized cafeteria.

Safe deductions

The situations in which New York employers may make payroll deductions are few and far between.

Section 193 prohibits employers from making deductions from an ­employee’s wages, except for those:

  • Made for the benefit of the em­­ployee, and
  • Authorized by the employee in writing in advance.

For example, deductions for employee contributions to employee benefits plans are legiti­mate. How­ever, before you begin deduct­ing for the benefit, you must make sure you get the employee’s sig­nature on a form acknowledging that the money will come out of his wages.

Recovering funds from employees

Section 193 prohibits any separate transactions between the employee and employer that would amount to the same thing as a prohibited deduction. That makes it difficult to recover money from employees.

The NYSDOL’s recent opinion letters reinforce that point with disappointing clarity. The letters emphasize the position that deductions from an employee’s wages for money owed to the employer—for example, to recoup an employee loan or recover overpayment of wages—are prohibited by Section 193. That’s true even if the employee has consented to the deductions in writing.

So how can you get money back?

It looks as if to recoup a loan you may have to rely on the employee to voluntarily write you a check. The same goes for an accidental overpayment of wages. And no, you can’t threaten discipline for failure to pay.

While it is permissible for an employer to ask an employee to pay the money back, if the employer threatens the employee with discipline for failure to pay back the money, NYSDOL will consider that conduct to be a prohibited separate transaction under Section 193.

In fact, NYSDOL states that in making such a request, the employer must clearly communicate that the employee’s refusal will not result in discipline or retaliatory action.

NYSDOL believes that a legal proceeding to collect the money is the employer’s only legal recourse if the employee voluntarily fails to repay. And that can be a time-consuming and expensive proposition.


Authors: John M. Bagyi and John Ho are members of Bond, Schoeneck & King’s Labor Law and Employment Law Practice. Contact Bagyi at (518) 533-3229 or jbagyi@bsk.com.

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