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November 20,2017

The New York State Department of Labor Reinterprets Wage Deduction Laws

Brokers and Employers Take Note!
Any employee knows that there is a difference between his “gross” pay and his “net” pay. Employers withhold Federal taxes, State taxes, FICA (social security), Medicare, and other deductions. cheap car rental The regulations covering this are well established; such deductions are rarely grounds for contention.

On occasion, however, brokers have been subject to other sorts of deductions as well. For example, when faced with pending litigation, indemnification, or FINRA fees, or when a miscalculation of wages or commissions results in a wage overpayment to a broker, brokerage firms have sometimes sought to recoup expenses or overpayments by deducting it from that broker’s paychecks. Last year, courts reinterpreted the statute that governs such transactions, and prohibited paycheck deductions in certain circumstances. This reinterpretation establishes a precedent that brokers should be aware of

Section 193 of the New York Labor Law prevents any deductions from wages unless they are “made in accordance with the provisions of any law or any rule or regulation issued by any governmental agency”; or are expressly authorized in writing by the employee; are for the benefit of the employee; and are limited to “payments for insurance premiums, pension or health and welfare benefits, contributions to charitable organizations, payments for United States bonds, payments for dues or assessments to a labor organization, and similar payments for the benefit of the employee.” Although the statute is narrowly drawn in order to permit few deductions from wages, the New York State Department of Labor (DoL) previously permitted an employer to recoup overpayment of wages from an employee’s salary. Now, however, the DoL has changed its interpretation and, even where the employee consents in writing to allow an employer to recoup an overpayment through a wage deduction, such a transaction is unlawful.

This interpretation of Section 193, prohibiting paycheck deductions even in the case of wage overpayment, suggests that in cases where a brokerage seeks to recover expenses relating to pending litigation, indemnification, or FINRA fees, paycheck deductions will also be deemed unlawful.

The DoL has held that deductions from wages for prior advances of salary, or for tuition, are also unlawful, even if the employee consents. While it is unclear whether or not an employer can make wage deductions to repay personal loans, such deductions are also likely to be unlawful under the DoL’s new interpretations.

Underpinning this logic is the 1964 decision by the Courts in New York holding that: “No industrial society tolerates the total deprivation of future earnings for the collection of debt; and all legal machinery for the enforcement of claims against wages allows some tolerance for the minimal needs of the employee while he works off the debt.” (Matter of Jones, 1963, affirmed, 1964).

This does not mean, however, that an employer who has made a wage miscalculation, or for other reasons requires repayment from an employee, is without recourse. The statute prohibits an employer recouping the overpaid amount from paychecks, but the employer can request the employee to repay the overpayment in a distinct, separate transaction. Should the employee refuse to pay back the money, however, the employer cannot discipline the employee through suspension, termination, or any other adverse employment action. When an employer requests recoupment of payment, he or she must expressly include a statement that an employee’s refusal to repay will not result in any discipline.

Another route available to an employer seeking to recoup overpayment is litigation – the

The penalty for unlawful wage deductions can be severe. The statute provides that an employee who sues for an unlawful wage deduction can recover the amount of the unlawfully deducted wages, counsel fees, and liquidated damages of 25 percent of the total, if the wage deductions are found to be “willful.”

Updated: November 15, 2015 — 11:08 am