Author: Scott Horton

Scott has been practicing Labor & Employment law in New York for almost 20 years. He has represented over 400 employers and authored 100s of articles and presentations and wrote the book New York Management Law: The Practical Guide to Employment Law for Business Owners and Managers. Nothing on this blog can be considered legal advice. If you want legal advice, you need to retain an attorney.

April 6, 2019

Recovering Overpaid Wages in New York

New York has restrictive prohibitions against making deductions from employees’ pay. For example, employers cannot deduct money from paychecks to recover the cost of damage caused by employees, cash register shortages, or even theft. However, special rules allow employers to recoup overpaid wages in some situations. But employers must comply with a series of procedural requirements to do so. These rules apply to all non-governmental businesses in New York.

Overpayment of Wages Due to Mathematical or Other Clerical Error

New York law only permits paycheck deductions for overpaid wages that result from “a mathematical or other clerical error by the employer.”

Surprisingly, the extensive New York State Department of Labor rules on deductions for overpayments don’t further explain what “mathematical or other clerical error” means. Many examples are obvious. If payroll misinterpreted handwritten numbers or added or left off a digit, then it’s almost certainly a clerical error. But is it a clerical error if the company included overtime pay for an employee who wasn’t entitled to it?

What’s most likely not covered is any situation where the company knowingly paid an employee one amount and later decided they should have paid less. Employers can’t reduce pay after the fact, such as based on subsequent observations of performance or in light of business losses incurred by the employee.

Interestingly, the law also might not allow for recovery where wages were overpaid due to a mathematical or other clerical error by the employee. Or even outright employee dishonesty or fraud, such as the employee overstating their time worked through the company’s timekeeping system. Of course, the company can still discipline the employee and even ask for the money back or sue them, but they couldn’t lawfully deduct it from any future wages earned.

Rules for Overpaid Wage Recovery

Assuming recovery is allowed because the overpayment was due to a mathematical or other clerical error by the employer, the company must establish and follow specific procedures to make the recovery legal. Failure to satisfy all requirements could render the wage recoupment unlawful. That would subject the employer to civil and potentially even criminal penalties.

Timing, Duration, and Frequency

Employers can only use paycheck deductions to recover overpayments made in the past 8 weeks.

Only one recoupment deduction can be made per pay period. If necessary, the deductions can last for up to 6 years from the original overpayment to recover up to the full amount overpaid.

Method of Recovery

Employers can recover overpayments through wage deduction or by a separate transaction, as long as they satisfy all other requirements.

Periodic Amount of Recovery

If the overpayment was less than or equal to the net wages earned after other permissible deductions in the next wage payment, the employer can recover the entire amount in that next wage payment.

However, if the overpayment exceeds the net wages after other permissible deductions in the next wage payment, then the recovery may not exceed 12.5% of the gross wages earned in that wage payment. And, in this case, the recoupment deduction cannot reduce the employee’s effective hourly wage below the minimum wage.

Notice of Intent

Before making any recovery of overpaid wages, the employer must notify the employee. The notice must contain the total amount overpaid, broken down by pay period. It must also show the total amount of deductions intended and the date and amount of each deduction to recover the overpayment.

The notice must also inform the employee that they can contest the overpayment. This includes providing the deadline for filing a dispute and the relevant procedure for doing so.

If the entire amount will be recovered in the next paycheck, then the employer must notify the employee at least 3 days before the deduction. In all other cases, the employer must issue this notice at least 3 weeks before the deduction can start.

All notices may be in writing or electronic means, such as email. Employers must use “ordinary language readily understood.” Text can be no smaller than 12-point font.

Dispute Procedure

As mentioned in the notice requirement, the employer must establish a procedure for employees to contest a proposed recovery of overpaid wages.

Except where the employer proposes to make the full recovery in the next paycheck, the employee has one week from receipt of the notice of intent to contest any aspect of the recoupment. Then the employer must reply within one week of receiving the employee’s response.

The employer’s reply to the employee’s response must address all issues that the employee raised. If the employer disagrees with any point the employee raised, the employer must explain why it disagrees. The company must allow the opportunity for a meeting with the employee within a week to discuss any remaining disagreements.

Ultimately, the company must give written notice of its final determination. Any deduction to recover overpaid wages may not begin until at least 3 weeks after the final decision.

If the employer can make the recovery entirely in the next pay period, then the timing for this procedure changes. The employee only has 2 days to respond to the company’s notice of intent. Doing so will postpone the deduction during the above process.

Companies that recovery overpaid wages without following these procedural requirements will create a presumption that any challenged deduction was impermissible.

Be Cautious in Recovering Wage Overpayments

Having the option of recovery wage overpayments through payroll deductions is appealing. And this can work out beneficially for employers. However, missing any components of the procedural requirements could get companies in trouble.

New York law does not look favorably on employers who make improper deductions from employee wages. Even a single complaint from one employee could prompt a broad investigation from the state’s Department of Labor. The NYSDOL has jurisdiction over an extensive arrange of wage and hour requirements. Before tempting this fate, employers should ensure they’re proceeding lawfully. Working with an attorney familiar with New York labor and employment laws is the best way to do this.

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March 30, 2019

New York Wage Deduction Rules

In addition to satisfying minimum wage and overtime requirements, employers are generally expected to pay employees all of the compensation they earn. In New York, businesses cannot withhold money from their employees’ wages unless expressly allowed by law. These New York wage deduction rules apply to all private employers, but not governmental entities such as municipalities and school districts.

New York Labor Law Section 193

Section 193 of the New York Labor Law says that “no employer shall make any deductions from the wages of an employee except deductions which” are either:

1. Made in accordance with any law or rule.

2. Voluntary, for the employee’s benefit, and expressly authorized in writing by the employee.

This category is limited to payments for:

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 event’s profits are being contributed to a bona fide 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 made at gift shops operated by the employer, where the employer is a hospital, college, or university;
pharmacy purchases made at the employer’s place of business;
tuition, room, board, and fees for pre-school, nursery, primary, secondary, and/or post-secondary educational institutions;
daycare, 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.

“Similar Payments”

Given the detailed nature of most items in this list, it’s always hard to determine whether anything else would qualify as a “similar payment” falling into the last category.

New York Department of Labor regulations explain that to qualify as “similar payments” the benefits to the employee must fall into one of these categories:

Health and Welfare Benefits
Pension and Savings Benefits
Charitable Benefits
Representational (i.e., union) Benefits
Transportation Benefits
Food and Lodging Benefits

The regulations also state that “convenience” is not a benefit. Thus, employers may not, for example, deduct a fee for cashing an employee’s paycheck.

The DOL also expressly prohibits deductions for employee purchases of tools, equipment, and work clothes; fines or penalties for misconduct; and repayment of employer losses, such as spoilage, breakage, and cash shortages.

3. Related to recovery of an overpayment of wages due to a mathematical or other clerical error by the employer.

The New York wage deduction rules only allow employers to recover overpayments of wages if the overpayment was due to a mathematical or other clerical error. If that is the case, then the employer must satisfy a number of specific procedural requirements in order to recover the overpayment from future paychecks. This includes advance notice to the employee and an opportunity to appeal the finding that an overpayment occurred.

Click here for more on recovering overpaid wages.

4. Repayment of advances of salary or wages made by the employer to the employee.

As with the recovery of overpayments, the New York wage deduction rules establish many procedural parameters for recouping money advanced to employees.

Under these rules, an “advance” is any provision of money by the employer to the employee based on the anticipation of the earning of future wages. If the payment is contingent on interest accruing, fees, or a repayment amount higher than the money provided by the employer, then it does not qualify as an advance. Employers cannot recover such “loans” through payroll deductions.

To establish a wage or salary advance that the employer may recover through payroll deductions, the employee must provide advance written authorization.

New York Wage Deduction Rules Apply to Separate Transactions

The New York wage deduction rules also prohibit employers from requiring employees to make any payment in a separate transaction that could not be made as a pay deduction. There is an exception where a current collective bargaining agreement requires the payment.

This prohibition does not prevent employers from asking for repayment or pursuing legal remedies against their employees. For example, an employer could sue an employee for theft of property or not repaying a lawful loan. But the employer could not take adverse employment action because the employee doesn’t pay. (However, the employer could, of course, take appropriate discipline for stealing, losing company money or property, etc.)

Review Your Wage Deduction Practices

New York businesses could face substantial penalties for failing to pay wages due to employees. This includes making unlawful wage deductions. Beyond taxes and standard employee benefits, such as insurance coverages, there are few permissible deductions from wages in New York. If you have any questions in this area, please consult with an experienced employment attorney.

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March 22, 2019

Will Proposed FLSA Rules Affect New York?

On March 22, 2019, the U.S. Department of Labor formally published proposed FLSA rules that would increase the salary level for key exemptions from federal minimum wage and overtime requirements. We discussed the DOL’s proposal in an earlier post when they were first publicized. The rules would require employers to pay employees at least $679 weekly ($35,308 per year) to preserve the exemptions. However, New York law already sets a higher salary threshold for similar exemptions. But that does not mean the federal proposal won’t have an impact in the Empire State.

In case you don’t want to read further to see whether these nuances affect your organization, here’s the quick summary:

The proposed FLSA rules are more likely to affect governmental employers in New York than those in the private sector.
Exempt “professionals” (other than doctors, lawyers, and teachers) would now have a higher salary requirement under the FLSA than under New York State law.

New York Has Its Own Rules

New York is among the states with the highest minimum wages in the U.S. The minimum wage now varies throughout New York State based on geographic location, among other factors.

Click here for complete charts on the various New York minimum wage rates and overtime exemption salary levels.

For most occupations, the current New York minimum hourly wage ranges from $11.10 for Upstate workers to $15.00 for some employees in New York City.

In addition to the State minimum wage, New York also has overtime pay rules that are similar to those found in the FLSA. These include similar exemptions, such as the administrative, executive, and professional exemptions that the proposed FLSA rules would alter.

New York’s administrative and executive exemptions also require that employees receive a sufficient salary. In 2019, the weekly salary thresholds for these exemptions range from $832 to $1,125. Thus, New York’s requirements already exceed the $679/week level in the newly proposed FLSA rules.

But the State Rules Don’t Apply to All New York Employees

First, let’s be clear, most New York employers are subject to both the federal FLSA and the similar New York State laws. That is, employers must satisfy both. Neither trumps the other.

However, not every workplace comes under the coverage of both federal and state minimum wage and overtime laws. And the primary distinction is perhaps counterintuitive.

Generally speaking, the FLSA applies to all but the smallest employers across the United States, including New York. This includes both the private sector and the government.

By contrast, the New York minimum wage and overtime rules don’t apply to governmental entities in the State, with limited exceptions. In other words, New York villages, towns, counties, school districts, and public authorities, as well as the State itself, don’t have to follow the New York laws with respect to most employees. But they do have to comply with the FLSA. (One narrow exception, for example, is non-instructional employees of public school districts, who are subject to the State requirements as well as the FLSA.)

New York Public Employers Must Heed the Proposed FLSA Rules

New York State and its municipalities and other public entities could currently have exempt employees making less than the $35,308 per year the proposed FLSA rules would require. The current FLSA requirement is just $455 per week, or $23,660 annually.

So, public employers in New York will need to review the proposed FLSA rules to evaluate the potential impact on their workforces. Although most full-time public employees in New York probably already make at least $679 per week, some part-time exempt employees at least do not. And the FLSA salary requirement is not pro-rated for part-time employees. Preserving exemptions for part-time employees may or may not be important, depending on whether they ever work over 40 hours in a week, which would trigger FLSA overtime obligations.

The DOL’s current proposals also affect a special “highly-compensated employee” exemption. Right now, that exemption requires that the employee receive at least $100,000 in total compensation in a year. The proposed FLSA rules increase that almost to $147,414. Many New York public employers have exempt employees falling within that range. This does not mean that all of them must receive a raise, however. Many would probably also qualify for other exemptions with the lower $35,308 salary requirement.

Moreover, unlike the private sector, even supervisory employees working for public employers in New York can unionize. This increases the likelihood that exempt employees might be subject to collective bargaining agreements. If so, then changes to the terms and conditions of their employment, including compensation, might need to be negotiated with their union. Governmental entities in this situation should allow additional time to do what is necessary to come into compliance with the proposed FLSA rules by the time the DOL finalizes them–likely later this year.

The Peculiar Case of the Professional Exemptions

The proposed FLSA rules pertain to three of the so-called “white collar” exceptions to federal overtime laws: the administrative, executive, and professional exemptions. (Click the corresponding link in the previous sentence for more on these exemptions and their New York State counterparts.)

Under the FLSA, all three of these exemptions have salary components. Not so under New York law.

New York’s administrative and executive exemptions do have salary requirements. Its professional exemption does not.

Thus, New York employers only have to satisfy the FLSA salary level to exempt qualifying professional employees. This group includes both “learned” professionals like accountants and engineers and artistic professionals like painters and musicians. So, the proposed FLSA rules might require employers to pay some of these individuals more to preserve the professional exemption.

As one final caveat, the FLSA has a further special exception for doctors, lawyers, and teachers. The salary requirement does not apply to these professionals, assuming they’re working in their licensed fields. The proposed FLSA rules don’t make any changes applicable to those employees.

Proposed Rules Are Not Final Yet

Keep in mind that we’re still only talking about proposed changes to the FLSA overtime exemption rules. The public has until May 21, 2019, to submit comments on the proposals. Then the DOL will have to review them and prepare “final” rules. Though there is a reasonable chance the final rules will closely mirror the current proposals, something might change. And the impact on New York workplaces could differ from that described here.

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