New York City recently revised its regulations to provide greater flexibility to employers by expanding the possible deductions an employer may make from an employee’s wages. Previously, an employer was only allowed to deduct from an employee’s paycheck in two instances: 1) where the deductions were authorized by law such as with income tax withholdings; and 2) where the deductions were authorized by the employee and were “for the benefit” of the employee, such as with health insurance premiums, pension or health and welfare benefits, contributions to labor organizations, contributions to charitable organizations, and other similar types of payments.
As before, employers are permitted to make a deduction that the employee has authorized where the deduction is considered “for the benefit of the employee.” Such a deduction is only permissible when the employee has received written notice of the terms and conditions of the payment and the details as to the manner in which deductions are to be made. However, under the newly revised regulation, the deductions have been expanded to include all of the following:
- Insurance premiums and prepaid legal plans;
- Pension or health and welfare benefits;
- Contributions to a bona fide charitable organization;
- Purchases made at events sponsored by a bona fide charitable organization affiliated with the employer where at least 20% of the profits from such an event are being contributed to a charitable organization;
- United States bonds;
- Dues or assessments to a labor organization;
- Discounted parking or discounted passes, tokens, fare cards, vouchers, or other items that entitle the employee to use mass transit;
- Fitness center, health club, and/or gym membership dues;
- Cafeteria and vending machine purchases made at the employer’s place of business, and purchases at gift shops operated by the employer, when the employer is a hospital, college, or university;
- Pharmacy purchases made at the employer’s place of business;
- Tuition, room, board and fees for preschool, nursery, primary, secondary, and/or post-secondary educational institutions;
- Day care, before-school, and after-school care expenses;
- Payments for housing provided at no more than market rates by non-profit hospitals or affiliates thereof, and
- Similar payments for the benefit of the employee.
The regulations also prohibit deductions for the following:
- Employee purchases of tools, equipment and attire required for work;
- Recoupment of unauthorized expenses;
- Repayment of employer losses, including for spoilage and breakage, cash shortages, and fines or penalties incurred by the employer through the conduct of the employee;
- Fines or penalties for tardiness, excessive leave, misconduct, quitting without notice;
- Contributions to political action committees, campaigns and similar payments, and
- Fees, interest, or the employer’s administrative costs.
In addition, an employer is allowed to deduct for the overpayment of wages if the overpayment was based on a mathematical or clerical error. Prior to the amendments, employers were often forced to sue their employees to recover overpaid wages, even when the employee was aware of the overpayment and consented to the recovery. In order to recover for overpayment under the revised law, the employer must provide notice to the employee prior to the commencement of such a recovery, implement a procedure for disputing the amount of such recovery or for seeking to delay the commencement of such recovery, and provide notice to the employee of the terms and contents of the procedure to dispute or delay the recovery.
Employers may also now deduct for the repayment of the advancement of wages made by an employer to the employee. In order to recover for the advancement of wages, an employer must provide notice to the employee prior to the commencement of such repayment, implement a procedure for disputing the amount of such repayment or for seeking to delay commencement of such repayment, and provide notice to the employee of the terms and contents of the procedure to dispute or delay the repayment at the time the loan was made.
Employers should note that the employee authorization for wage reductions, with an exception for deductions authorized in an existing collective bargaining agreement, may be revoked at any time in writing by the employee. An employer must cease the wage reduction within four pay periods or eight weeks, whichever is sooner. Additionally, an employer must notify the employee before any substantial change in payment or deduction is implemented.