The Employment Lawyer’s Prescription: How to Recover Wage Overpayments

By: Steven M. Berlin
Tuesday, December 3, 2013

Until recently, New York employers were not permitted to make deductions from an employee’s pay for wage overpayments due to mathematical or clerical errors. Instead, the employer was limited to requesting the employee pay back the overpayment so long as it also communicated that a refusal will not result in any disciplinary or retaliatory action, or the employer could sue the employee.

However, a 2012 amendment to New York Labor Law Sec. 193 governing various types of permissible wage deductions for the benefit of employees also provided employers with the ability to make deductions for wage overpayments. As required by Sec. 193, the commissioner of labor has issued regulations implementing the amendment, which became effective Oct. 9, 2012.

An employer may now recover overpayments by deduction, but only those made in the last eight weeks prior to issuing a required notice of intent for overpayment deductions. The employer may make the deductions over a period not exceeding six years from the date of the original overpayment. Further, an employer may make overpayment wage deductions no more frequently than once per wage payment.

If the entire overpayment is less than or equal to the net wages earned after other permissible deductions in the next wage payment, the employer may recover the entire amount in that next wage payment, but must give employees a notice of intent at least three days prior to the date of a deduction. Where the recovery of an overpayment exceeds net wages, the recovery may not exceed 12.5 percent of the gross wages earned in that wage payment, the deduction shall not reduce the effective hourly wage below minimum wage, and notice must be given at least three weeks before the deduction can be made.

The notice must contain the amount overpaid in total and per pay period, the total amount to be repaid in wage deductions, the date each deduction shall occur, and the amount of each deduction. The notice must clearly communicate that the employee may contest the overpayment and the date by which the employee must contest the overpayment and terms of recovery, and refer to the employer’s published dispute resolution procedure.

Employers are required to have a dispute resolution procedure with the provision that the employee shall respond within one week from the receipt of notice. The employer then has a week to provide a clear statement regarding the company’s position regarding the overpayment and provide written notice that the employee has one week from receiving the employer’s response to meet with the employer to discuss any disagreements. The employer must provide a written final determination within one week of the meeting and may not take the deduction until at least three weeks after issuing a final determination. Dispute resolution procedures in collective bargaining agreements that have at least this much protection are sufficient; however, such agreements executed after the issuance of the regulations should specifically reference the regulations.

Any deduction found to be improper under the dispute resolution procedure must be repaid by the employer no later than the time period provided for payment of wages earned on the day of the final determination.

The regulations also provide that communications with the employee related to such deductions must use ordinary language readily understood and must appear in 12-point font or larger, and records must be maintained by the employer for the duration of the employee’s tenure and for six years after employment ends.

In addition to recovering wage overpayments, the law also has very specific provisions for recovery of certain advances and other authorized deductions for the benefit of employees.

So, what is the employment lawyer’s prescription for recouping wage over payments? Employers can start recovering such funds through wage deductions so long as their policies, procedures and notices comply with the very specific requirements of Sec. 193 and the regulations.

Steven BerlinPartner Steven M. Berlin is the head of Martin Clearwater & Bell LLP’s Employment and Labor Practice Group.