Amended Labor Law Section 193 Allows Employers Greater Flexibility with Payroll Deductions

Effective November 6, 2012, amended New York Labor Law section 193 relaxes the overly restrictive dictates of the old law and gives employers greater latitude in making deductions from employee paychecks. Employers should note, however, that amended Labor Law section 193 still requires that such deductions must be for the benefit of the employee.

Old Labor Law Section 193 Strictly Limited Payroll Deductions  

Previously, Labor Law section 193 only allowed deductions from employees' paychecks in two situations: (1) when the deductions were authorized by law, such as income tax withholdings and court ordered garnishments; and (2) when the deductions were "authorized in writing" and "for the benefit of the employee," such as health insurance premiums, pension or health and welfare benefits, contributions to labor organizations or charitable organizations, and/or similar types of payments.  

Other deductions from employee paychecks, such as deductions relating to an overpayment of wages or an advance payment, were found to violate the old Labor Law section 193 because the deductions were not considered as being "for the benefit of the employee." The New York State Department of Labor's interpretation of section 193 was so strict that even obvious and gross overpayments to employees could not be deducted from an employee's paycheck, leaving an employer with no recourse but to sue current and former employees even if the employees had knowingly accepted erroneous overpayments. 

Amended Labor Law Section 193 Permits More Reasonable Deductions

Significantly, amended Labor Law section 193 now allows employers to make wage deductions to recover “an overpayment of wages where such overpayment is due to a mathematical or other clerical error by the employer” and to obtain “repayment of advances of salary or wages made by the employer to the employee.”

Additional wage deductions are also permitted with the employee's consent, including:

• costs associated with discounted mass transit tickets, passes or user cards
• fitness or health club and/or gym membership dues
• cafeteria, vending machine, and pharmacy purchases made at the employer's place of business, and gift shops run by hospitals, colleges and universities
• tuition, room, board and fees for nursery, primary, secondary and post-secondary education costs
• daycare and before- and after-school care expenses

With some exceptions, an employee's consent to a wage deduction may be revoked in writing at any time and, upon notice to the employer, the wage deduction must cease as soon as practicable. Further, employees must receive written notification regarding the terms and conditions of any deduction or repayment program, and employers are required to institute procedures allowing employees to dispute the amount or the nature of the deduction.

To ensure compliance with Treasury Regulations (31 CFR Part 10, §10.35), we inform you that any tax advice contained in this correspondence was not intended or written by us to be used, and cannot be used by you or anyone else, for the purpose of avoiding penalties imposed by the Internal Revenue Code.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.