Business Council Comments on Wage Deduction Regulations

TO:  Amy C. Karp, Legislative Counsel
       New York State Department of Labor
       State Office Campus, Building 12, Room 509
       Albany, NY 12240

RE:  Deductions from Wages
      I.D. No. LAB-21-13-00010-P

On behalf of The Business Council of New York State, Inc. and its members, the following comments to proposed 12 NYCRR 195 are submitted.

Section 195.4.2(a)

In defining deductions “authorized by the employee,” this subdivision – consistent with statute - requires that employers provide detailed written information on the terms and conditions of payroll deductions and any changes thereto. However, the proposed rule goes on to provide that, “The employee, or a person selected by the employee, shall be given an opportunity to review such material, however the employer is not required to pay or provide the means for such review.” [Emphasis added]. The intent of this provision is unclear. If the intent to give each and every employee the opportunity to designate a person who will review the terms of condition on their behalf, and the employer has an obligation to provide the notice to these additional designees, this provision is both unworkable and unsupported by statute. We believe this provision would be sufficient in saying that the employee must have an opportunity to review terms and conditions, including changes. If an employee choses to do so, it is their responsibility to seek additional review and advice. But no additional obligation should be imposed on the employer in this regard. Therefore, we recommend striking the phrase “or a person selected by the employee” from the final rule.

Section 195-4.2

It would be helpful for the employer community to know what impact, if any, the 2012 statutory changes, and this rulemaking, have on the provisions of the Department’s July 2010 guidance on wage withholding. Specifically, that guides states that withholdings are permissible if they do not exceed ten percent of an employee’s gross wages, minus required deductions. The statute (Labor Law §193.3(b)) provides that the total aggregate amount of such deductions for each pay period shall be limited by both an employer and employee-designated cap. It is unclear whether the 10 percent threshold will serve as a default, or whether that guidance will be rescinded in its entirety. The Department needs to inform business as to its intended approach.

Section 195-4.4(b)

This subdivision states that allowable deductions include “…Payments that are made for pension benefits and United States bonds.”  However, the statute clearly allows for payroll deductions for other types of retirement savings programs, i.e., Labor Law §193.2 states that:

Deductions made in conjunction with an employer sponsored pre-tax contribution plan approved by the IRS or other local  taxing  authority, including  those  falling within one or more of the categories set forth in paragraph b of subdivision one of this section, shall  be  considered to  have  been made in accordance with paragraph a of subdivision one of  this section.

Withholdings for these types of plans need to be included in the Department’s final rule, either here or as a separate category under Section 195.4.4.

Section 195-4.5

The need for and usefulness of proposed section 195-4.5, “Prohibited Deductions,” is questionable, for two reasons. First, it is unusual for regulations regarding permissive or required actions to include a partial list of unpermitted or non-mandated actions. In actuality, section 193 precludes innumerable other categories of withholdings that may be desired by employees or employers, and for which employees and employers may want DOL guidance as to whether they are “similar to those specified by Section 193 of the Labor Law, authorized by, and for the benefit of, the employee.”  As such, this section provides very limited guidance in this respect. We note that this list was largely derived from a July 2010 DOL guidance document entitled “Deductions from Wages.”  We believe Departmental guidance, rather than binding rulemaking, is the correct forum for this type of list. Further, in addition to providing updated guidance on precluded withholdings categories, it would be helpful if the Department would also put in place a clear mechanism for business and employees to obtain case-specific DOL guidance.

Second, both Labor Law section 193 and this proposed regulation are clear in that allowable deductions from wages include “Any deductions made in accordance with any law, rule or regulation issued by any governmental agency.”  However, the proposed section 195-4.5 presents a partial list of “deductions that are not similar to those listed in the statute and above,” and therefore apparently not allowable. This is misleading since the proposed section 195-4.5 list includes, in its subdivision (f), “Contributions to political action committees, campaigns and similar payments.”  The Department has previously confirmed that, regardless of the provisions of Labor Law section 193 “…certain contributions are permitted by payroll deductions by the Federal Election Campaigns Act (2 UCS § 195-4.5432 et. seq.)” (emphasis added, see counsel’s opinion of 1/25/07 regarding DOL file # RO-07-0007). In this case, it is irrelevant if such withholdings are “not similar” to the statutory and regulatory list, as categories of withholdings authorized by other laws are not superseded by the provisions of Labor Law section 193 or this proposed rule.

Again, our preferred solution here is to simply strike the proposed section 195-4.5 from this rulemaking, and leave any such description of excluded categories to Departmental guidance. At minimum, if section 195-4.5 were to be retained in some form, it should reiterate that this partial list of precluded withholding categories only applies where not otherwise authorized in law.

Section 195-5.1(a)

Proposed Regulation Section 195-5.1(a) would limit deductions for the recovery of wage overpayments to those made for overpayments made “in the eight (8) weeks prior to the issuance of a notice” of intent to recover.  This eight-week limitation is arbitrary and would impose unreasonable burdens upon employers and create unwarranted windfalls for employees.

An administrative agency “may adopt only rules and regulations which are in harmony with the statute’s over-all purpose.”  Gen. Elec. Capital Corp. v. New York State Div. of Tax Appeals, 2 N.Y.3d 249, 254 (2004). It is a fundamental principle of administrative law that an agency cannot promulgate rules or regulations that contravene the will of the legislature. Weiss v. City of New York, 95 N.Y.2d 1, 4-5 (2000). Here, the purpose of the statute is to “allow recapture of overpayments pursuant to regulations to be promulgated by the Commissioner.”  Governor’s Program Bill #49, p. 3, included in NYLS Legislative History, 2012, Chapter 451 (emphasis added). Wage deductions are necessary because “the inadvertent overpayment of wages due to mathematical or other clerical errors occurs with some frequency.”  Id.

The eight-week limitation imposed by 5.1(a) would, if promulgated, severely limit the ability of employers to recapture overpayments through deductions, thus contravening the fundamental purpose of Labor Law Section 193(1)(c). If the legislature had intended for deductions to be authorized only within the very limited period set forth in 5.1(a), it doubtlessly would have said so in the enabling statute.
The proposed section 5.1(a) would unreasonably curb the benefits intended by the legislature by limiting the statute’s benefits to only those employers that almost immediately find, correct and give notice of inadvertent overpayments. Only employees, who have suffered no harm by receiving erroneous overpayments of wages, would gain from the Commissioner’s restrictive reading.  If the employee, who commonly would know if he or she were overpaid for some period, does not bring the overpayment to the employer’s attention, an overpayment may not be found until the end of a quarter, year, or even later
The proposed section 5.1(a) would impose an 8-week limitations period for recovery of wage overpayments, although there is no indication that the Legislature intended such. While the statute authorizes the Commissioner to promulgate regulations as to the “timing” of wage deductions for overpayments, it does not impose any such limitations. Rather, the most natural reading of the statute, in line with its overall purpose, is that the “timing” referred to is the time when deductions for overpayments may commence, consistent with the notice requirements of the statute.

The Commissioner should not place such arbitrary limits on how far back an employer may look to seek recovery via deductions, the use of which offers advantages to both the employee and employer. Indeed, Article 6 already contains a six-year statute of limitations that should likewise apply to deductions for overpayment. See N.Y. Lab. Law 198(3).

Section 5.1(a) would impose onerous and unreasonable burdens upon employers. The eight-week limitation ignores the reality that clerical errors related to wage payments occur “with some frequency” (Governor’s Program Bill #49, p. 3, included in NYLS Legislative History, 2012, Chapter 451) and, as a consequence, often are not immediately discovered by the employer. .

Section 5.1(a) would also unfairly limit recovery of inadvertent continuing overpayments. Often, overpayments are the result of incorrect rates of pay that may persist on an ongoing basis due to computer errors, data entry or bookkeeping mistakes. In such situations, each paycheck results in a new overpayment until the clerical error is discovered and corrected. Under the proposed 5.1(a), however, the employer could recover via deduction only for -- at most -- eight weeks prior to discovery of the overpayment, even if overpayments due to the same clerical error had occurred for a much longer period.  

It goes without saying that an employee who is overpaid has not earned the additional monies received. Rather, he or she has benefited by receipt of unearned wages, akin to an advance. An employee who receives extra wages is not a victim, unlike those denied minimum wages or overtime, and therefore is not in need of such extraordinary protection from deductions. Yet, under the proposed regulatory scheme, an employee need wait only eight weeks until he or she could be in the clear and refuse to return such unearned amounts. While an employer could of course still bring a legal action to recover the overpayments, such a step would rarely be undertaken, and requiring employers to do so would contravene the statute’s purpose of facilitating recovery of overpayments without resort to costly and timely procedures. An employee has greater incentive immediately to bring erroneous overpayments to an employer’s attention when he or she knows recovery by deduction is available. The Commissioner’s proposed regulations would dis-incentivize such voluntary reporting by employees and reward employees who knowingly accept such overpayments.

The vast majority of States permit such deductions for overpayments. Section 5.1(a) would be the most burdensome limitation on wage deductions imposed by any State. We have found only two other states, Michigan and Washington, that place limits on how far back an employer may look to recover overpayments through deductions. Both states provide for lengthier periods than those contemplated by 5.1(a), and Michigan even appears to permit deductions outside of its six-month limitation period with the employee’s consent.    

Accordingly, we respectfully request that the Commissioner revise Section 5.1(a) to remove the 8-week limitation altogether, or in the alternative, replace it with a period more consistent with the statute’s 6-year statute of limitations.

Section 195-5.1(h) & 195-5.2(h)

The purpose of the statute is to allow recapture of overpayments. The processes set forth for recapturing overpayments and recovering advances are quite detailed in their time requirements and written notice requirements. Yet in a scenario where an employer accidentally overpaid an employee and sought to recover the amount, the employee would enjoy a presumption that the deduction was impermissible if the employer did not give a written reply within a week of the employee’s original statement, give the employee written notice of the opportunity within a week, or provide yet another written notice of the final disposition within a week. While this presumption is rebuttable, the employer should not have to overcome a presumption against it where the employee actually owes repayment to the employer, and the employer simply committed a technical violation of the time or notice standards.  

We understand the Department’s intent to prevent employers from making improper deductions, but where the employee actually does owe the employer repayment, the regulations should not penalize the employer. Accordingly, we respectfully submit that the Commissioner revise these subsections, and not penalize employers who are legitimately owed the money resulting from the overpayment or advance.