Deduction from Wages
Employers deduct wages from their employees’ checks for various reasons. In some cases, state and federal laws require employers to withhold a portion of an employee’s wages and remit that money to the government, such as for paying income taxes. Employers can also make other deductions with the employee’s consent, such as insurance premiums or union dues. However, state labor laws and regulations impose strict requirements on employers when they make non-mandatory deductions, including when deducting wages to recoup employer advances or overpayments. When an employer fails to follow wage deductions regulations, they can face financial liability under state labor laws.
Which New York State Laws Address Deductions from Workers’ Wages?
Section 193 of the New York Labor Law defines the deductions that employers may lawfully make from workers’ wages. The law permits employers to make deductions required by any law, rule, or regulation issued by any governmental agency. As a result, New York state law also permits deductions required by federal law, such as withholdings for federal, state, and local income taxes, Social Security and Medicare taxes, and court-ordered deductions or garnishment for child support, alimony, or overpaid benefits.
Mandatory Deductions
State, federal, and local laws require employers to make specific deductions from workers’ paychecks, regardless of whether an employee consents to the deduction. These mandatory deductions include:
- Federal Income Tax – Employers must withhold federal income tax from employees’ paychecks. Employers calculate how much federal income tax to withhold from an employee’s paycheck based on either the wage bracket method – which uses calculated tables based on the employee’s marital status, taxable wages, and tax credits – or the percentage method, which requires a more complex calculation to determine the amount of pay to withhold. Employers remit withheld income taxes to the government, which serves as a credit for taxes paid when the employee files their annual income tax return.
- State Income Tax – Employers must withhold state income taxes from employees’ paychecks.
- Local Income Tax – Local laws may require employers to withhold tax from the paychecks of employees who live or work in municipalities that impose local income taxes.
- Social Security and Medicare – Federal law also requires employers to deduct the employee’s portion of Social Security and Medicare taxes from their paychecks and remit those taxes to the federal government.
- Court-Ordered Garnishments – State and federal courts can also order the garnishment of an employee’s paycheck to satisfy a court-ordered debt or financial obligation. This requires an employer to deduct pay and remit it to the appropriate government agency or department. Courts can order wage garnishment to satisfy child support or alimony obligations, civil judgments, unpaid taxes, or overpaid government benefits (e.g., Social Security, Medicaid, unemployment insurance).
Deductions Permitted with Employee Consent
Section 193(1)(b) also allows employers to deduct money for specific fees or expenses from a worker’s paycheck if they obtain the employee’s voluntary written consent. Employees can also provide authorization for deductions through the terms of a collective bargaining agreement. The law also requires employers to notify employees as soon as possible before making changes to an employee’s pay and deductions when those changes will result in an increased deduction. The law expressly identifies the types of deductions that employers can make with employee consent, which include:
- Insurance premiums and prepaid legal plans
- Pension or health and welfare benefits
- Contributions to bona fide charitable organizations
- Purchases made at events sponsored by bona fide charitable organizations affiliated with the employer where at least 20 percent of the profits from such events go to the charitable organization
- United States bonds
- Dues or assessments owed to a labor organization or union
- Discounted parking or discounted passes, tokens, fare cards, or vouchers for mass transit
- Fitness center, health club, or gym membership dues
- Purchases from the employer’s cafeteria or vending machines or purchases made from a gift shop operated by a hospital or post-secondary educational institution employer
- Purchases made from pharmacies at the employer’s place of business
- Tuition, room, and board for preschool, nursery, primary, secondary, or post-secondary education
- Daycare, before-school, and after-school program fees
- Housing provided by the employer at no more than market rates by non-profit hospitals or their affiliates
Similar Payments
Section 193 also allows employers, with an employee’s written consent, to deduct “similar payments for the benefit of the employee.” These payments refer to financial or other support for an employee, their family, or a charitable organization. Support must provide more than a mere convenience for the employee, meaning employers cannot take deductions for check-cashing fees or other similar charges. Furthermore, employers may not take deductions that result in a financial gain for the employer at the employee’s benefit. Instead, an employer may take a paycheck deduction for a “similar payment” if it makes the payment for the employer’s or their family’s:
- Health and welfare benefits, including insurance premiums, prepaid legal plans, fitness center/health club/gym membership dues, and pharmacy purchases made at the employer’s place of business
- Pension and retirement benefits, including payments made for pension plans and United States bonds
- Childcare or educational benefits, including daycare or before- and after-school care expenses and tuition, room, and board for educational institutions
- Charitable benefits, including contributions to bona fide charitable organizations or purchases made at events held by charities affiliated with the employer that receive at least 20 percent of the event’s profits
- Dues or assessments to labor organizations
- Transportation, including discounted parking or mass transit fares
- Food or lodging, including purchases from employer-provided cafeterias or vending machines, purchases made at hospital/college/university employer gift shops, or housing provided at no more than at-market rates by non-profit hospital employers
Pre-Authorized
When New York Labor Law requires an employee to provide written consent before an employer can deduct pay from their paycheck, the law deems those deductions “pre-authorized.” An employer must secure the employee’s approval before commencing these deductions. A valid written employee authorization must:
- Be contained in a written document
- Be provided to and voluntarily signed by the employee (the employer cannot coerce or pressure the employee into agreeing to the deduction)
- Contain the terms and conditions of the deduction, including the benefit(s) of the deduction for the employee
- Describe how the employer will make the deduction, including the amount the employer will deduct from each paycheck and the total cost of the deduction
- Use easily understood language
Before an employer implements any change to the terms of an employee-authorized deduction, including increasing the deduction amount, the employer must obtain the employee’s consent to the amended terms. The law also typically gives employees the right to revoke written authorizations for paycheck deductions, subject to the terms of any other applicable agreements.
Wage Overpayments
Section 193 and the corresponding regulations adopted by the New York Department of Labor also allow employers to take wage deductions without an employee’s consent to recoup prior wage overpayments caused by mathematical or clerical errors. Employers must notify workers of their intent to make deductions to recover wage overpayments. They must also meet specific criteria to take an automatic deduction for reimbursement of overpaid wages:
- Timing – Employers can only deduct overpayments made within the eight weeks before their notice of intent to deduct from wages. Once the employer has issued timely notice of intent to deduct to recoup overpayments, they can make deductions to recover eligible overpayments over six years from the original overpayment.
- Frequency – Employers may not make deductions for overpayments more than once per pay period.
- Method – Employers may recover wage overpayments through wage deductions or separate transactions.
- Amount of Recovery – When the total overpayment does not exceed the net wages earned after other permissible deductions, an employer may recover the entire overpayment from the next wage payment. However, when an overpayment exceeds net wages, the employer may not deduct more than 12.5 percent of the employee’s gross wages in a wage payment, and the deduction may not reduce the employee’s effective hourly wage below the minimum wage.
Dispute Resolution Procedures
An employer must offer employees a dispute resolution procedure to contest paycheck deductions for recoupment of wage overpayments. They may use the dispute resolution procedures in a collective bargaining agreement if it offers the same protection of the worker’s rights as the DOL regulations. The regulations require a dispute resolution procedure to:
- Provide an employee one week from receipt of the notice of deduction to contest the deduction.
- Obligate the employer to respond to the employee’s contest within one week of receipt. The employer’s response must address the issues raised by the employee and clearly state the employer’s position regarding the overpayment, including whether the employer agrees or disagrees with the employee and the reasons why.
- Allow the employee to meet with the employer within one week of receiving a reply to discuss any remaining disagreements.
- Provide the employee written notice of the employer’s final determination regarding the deduction within one week of the parties’ meeting. The employer must consider whether the employee may have regarded the alleged overpayment as a new pay rate and any other issues raised by the employee.
When an employee avails themselves of the offered dispute resolution, the employer may not commence paycheck deductions until at least three weeks after providing their final determination. Employers must repay employees for any deductions later deemed improper on the payday for the pay period when that determination occurs. Employers who fail to offer a dispute resolution procedure face a presumption that they improperly deducted wages.
Wage Advances
A wage advance refers to money that an employer pays an employee before they earn it. Employers typically make wage advances in anticipation of the employee later earning those wages. Employers may offer wage advances to new hires to provide them with money for relocation or living expenses that the employees will incur before their first payday.
New York law allows employers to recover wage advances through payroll deductions if the employee authorizes them in writing prior to the deduction. However, employers cannot charge interest or fees on wage advances.
Deductions
Deductions made to recoup wage advances must meet specific requirements for the timing, duration, frequency, and method of recovering the advance.
Written Authorization Timing and Duration
Before the employer issues the advance, the employer and employee must agree in writing to the timing and duration of paycheck deductions for recoupment of wage advances. Once an employer issues a wage advance, it may only issue a subsequent advance once the employee has repaid their outstanding advance per the agreed-upon terms. Furthermore, employers cannot recover any money that exceeds the amounts permitted for deduction. Employers cannot recover wage advances through wage deductions more than once per pay period.
The written advance authorization form, as signed by the employee, must contain the amount of money advanced by the employer, the amount the employer may deduct per pay period and in total to recoup the wage advance, and the date(s) on which the employer may make paycheck deductions. The authorization must also advise the employee that they have the right to contest any deduction that violates the terms of the authorization agreement. The employee may revoke their written authorization only before the employer issues the wage advance.
Method of Recovery for Advances
An employer can recover advances through wage deductions or separate transactions. However, New York DOL regulations prohibit employers from requiring employees to make a separate payment to reimburse wage advances unless the regulations or an applicable collective bargaining agreement would also permit that payment as a deduction from the employee’s paycheck. When an employee makes a separate transaction to repay the employer for a wage advance, such as tendering cash or a check, the employer must provide a receipt to document the receipt of money.
The amount of money that the employer can recover per paycheck deduction will depend on the terms agreed upon in the employee’s written authorization. These terms can include giving the employer the right to recover the outstanding balance of the wage advance by deducting the last wage payment if the employee’s employment ends before the written advance agreement expires. This means an employer may deduct the remaining balance owed on a wage advance from the employee’s last paycheck following their resignation or termination, regardless of the paycheck amount.
Step-by-Step Dispute Process
DOL regulations require employers to implement procedures for employees to dispute deductions for wage advances. Employers must provide employees with a written copy of the official dispute procedures. Employers can rely on the dispute resolution procedures in the collective bargaining agreement between themselves and the employee’s union if the procedure provides at least as much protection as that afforded under the DOL’s regulations. The DOL’s dispute resolution procedure requires:
- Giving the employee the means to provide written notice of their objection to the deduction(s)
- Requiring the employer to reply in writing to the employee’s objection as soon as possible, addressing the issues raised in the employee’s objection and providing a clear statement of the employer’s position, including whether they agree or disagree with the employee’s objection
- Obligating the employer to pause deductions after receiving notice of an employee’s objection until the employer submits its reply and makes any appropriate adjustment to the deductions; any such delay will extend the authorized time frame for the employer to recover its advance through deductions
Failing to afford employees a dispute resolution process will create a presumption of impermissibility for a wage advance. Furthermore, employers may not recover any advance that does not comply with Section 193 of the Labor Law or associated DOL regulations through paycheck deductions.
New York Labor Law and associated Department of Labor regulations prohibit employers from deducting various charges, fees, or debts from an employee’s paycheck, regardless of whether they obtain the employee’s consent. Common examples of prohibited paycheck deductions include:
- Repayment of employer losses, including those caused by product damage, spoilage, or customer theft
- Repayment of cash register or till shortages
- Repayment of loans, advances, or overpayments, except as otherwise authorized by the New York Labor Law and DOL regulations
- Recoupment of unauthorized expenses
- Contributions to political campaigns, political action committees, or other similar payments
- Fines or penalties imposed by the employer on an employee for workplace misconduct, including tardiness, taking excessive breaks or leave, or quitting without notice
- Repayment of losses caused by the employee’s theft of workplace materials, tools, equipment, or merchandise for sale
- Cost of uniforms or work clothing
- Cost of tools, equipment, machinery, safety equipment, or personal protective equipment used by the employee for their work
- Repayment for tools, equipment, machinery, or other employer property broken or destroyed by the employee
- Fees or interest
- The employer’s payroll or human resources administrative costs
Food
Employers generally may not make paycheck deductions for food, except for purchases made by an employee at a cafeteria or vending machine at the employer’s place of business. However, when an employer provides prepared meals to workers, they can take a meal credit towards minimum wage if the employee earns more than a certain amount of income set by the DOL over a two-week period. The employer must list meal credits on the employee’s pay stub and may not take credit for meals not eaten by the employee.
Housing and Utilities
Employers also generally may not make paycheck deductions for housing provided to employees. There is an exception for housing provided by a non-profit hospital or affiliate at or below market rates. However, most employers can take an allowance toward minimum wage for housing and utilities provided to workers. Employers can take a weekly allowance when providing single-occupancy housing (e.g., a private room in a shared residence) or multi-occupancy housing (e.g., shared bedrooms or dormitory arrangement), or a daily allowance when providing an individual apartment or housing unit.
Employers of migrant or seasonal farm workers may not take a housing/utility allowance toward workers’ minimum wage. If the employer offers housing and utilities to these workers, it must do so free of charge.
Cable
When employers provide housing and utilities to workers, they cannot deduct the cost of cable, internet, telephone, or other telecommunications services from an employee’s paycheck. An employee should open an account for employer-provided housing in their own name. If the employee cannot open an account for whatever reason, the employer can open the account for the housing unit and seek reimbursement of the service charges from the employee. However, the employer cannot obtain reimbursement by deducting those charges from the employee’s paycheck.
If you believe your employer has wrongfully deducted wages from your paycheck, you deserve to pursue accountability and compensation to the fullest extent allowed by the law. A New York City wage-and-hour lawyer from Lipsky Lowe LLP can guide you through state and federal payroll and wage-and-hour laws and how they apply to your situation. We’ll help you understand what deductions your employer must or can make from your paychecks and determine whether you may have a claim against your employer for unlawfully deduced pay. Contact us today for a free and confidential consultation with our wage-and-hour attorneys to discuss your legal options and get help pursuing financial recovery for the pay you worked hard to earn.