Q: I run a small business on Long Island with nine employees. I heard that the law in New York has changed concerning employee pay check deductions. Does this change affect my business and my employees?
A: While this new law has not yet taken effect, upon approval by the Governor, it will affect employers and employees in New York in a number of ways.
Last month, the New York State legislature passed a bill, S7790, that will provide increased flexibility in making deductions from employee’s paychecks. Currently, no deductions from an employee’s paycheck are allowed except for a few categories such as Social Security, insurance premiums, health benefits and union dues. Upon the Governor’s approval (followed by a 60-day waiting period), this bill will establish new categories of permissible wage deductions that may be taken with employee consent. In addition, the law will allow employers to make wage deductions for the purpose of recovering wage overpayments caused by clerical error, or for the purpose of repaying wage advances made by the employer to the employee.
The bill will also permit wage deductions that are expressly authorized by the employee for a number of purposes. The new categories of permissible wage deductions include expenditures associated with prepaid legal plans; purchases for charitable organizations; discounted mass transit passes; gym membership dues; cafeteria and pharmacy purchases made at the employer's place of business; tuition, room, board and fees for pre-school through post-secondary education; childcare expenses; and payments for housing provided by non-profit hospitals. These new categories will not disturb wage deductions already permitted under current law.
The employer and/or employee may set a limit for each pay period on the total amount of certain employee-authorized deductions made for expenditures benefitting the employee. Once deductions are made, the employee will have access to account information regarding expenditures and deductions.
When making deductions, employers must comply with regulations promulgated by the Commissioner of Labor. Before recovery or repayment is initiated, the regulations require an employer to give notice to the employee and implement a procedure through which an employee can dispute the amount to be recovered or repaid. Finally, the regulations will limit the size of recoverable overpayments and delineate the appropriate timing and method for recovery or repayment.
In sum, this new legislation significantly will change long-standing New York law by authorizing the application of earned wages to a broad spectrum of purposes by way of paycheck deductions.