Imagine how stressful this situation would be: Natalie’s boss recently called her into the office and gave her bad news. Fortunately, it wasn’t a layoff, but it was almost as stressful and potentially financially devastating.
His boss said the payroll department had made mistakes in recent months and, in total, they had overpaid about $7,000 over the course of a year.
Natalia was surprised. Because he works two jobs, he hadn’t noticed the incremental overpayments and admitted he hadn’t been checking his bank statements every month.
Then her boss gave her even more disconcerting news: He said Natalie can return all the money or work for free until she makes up her hours. Natalia was surprised. He lives paycheck to paycheck and can’t afford to pay a lump sum of $7,000. His boss didn’t seem to believe a payment plan was possible.
Natalie didn’t know what to do. She wasn’t sure if her boss could legally force her to work for free or even pay him back.
Federal and state laws allow employers to garnish (automatically reduce) workers’ wages if there has been an overpayment. However, there are also rules about how much an employer can charge.
Under the US Consumer Credit Protection Act (CCPA), there are restrictions on the weekly amount that can be deducted from your pay. If your weekly “disposable income” amount (the amount after legally required deductions such as taxes and Social Security) is more than $290, a maximum of 25% can be deducted. If your disposable income is less than $217.50 (or 30 hours of work at the federal minimum wage of $7.25), nothing can be deducted. For disposable income greater than $217.50 but less than $290 (40 hours at $7.25), your employer can garnish the amount greater than $217.50 (1).
State laws will also affect how and when an employer can garnish wages after an overpayment. In most states, an overpayment is classified as a salary advance and employers do not need the employee’s permission to make deductions.
If state law differs from federal law on wage garnishment, the CCPA provides that any law that results in less money being garnished will apply (2).
Fortunately for Natalie, she lives in New York, where there are additional provisions that protect workers when employers make garnishments for overpayments.
New York law states that the employer must notify the employee of its intention to make overpayment garnishments. The notice must also:
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Received at least three weeks before deductions begin (unless the amount can be recovered in a salary payment and other procedures are followed).
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Indicate the amount overpaid in total and by payment period
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Indicate the total amount to be deducted and the date of each deduction.
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Include information about when and how the employee can dispute the overpayment.
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Perhaps most importantly, in New York deductions for overpayment can only be made during the eight weeks of overpayment prior to delivery of the notice of intent to the employee.
In New York State, if the overpayment is less than or equal to your next paycheck, the full amount can be deducted from that check. However, if it is more than the next paycheck, the maximum amount that can be deducted is no more than 12.5% of your gross earnings, and the amount cannot cause your effective hourly wage to be less than the state minimum wage (3).
Natalie’s boss’s suggestion that she work for free to pay off the salary overpayment is illegal. Because you live in New York state, your employer can only deduct overpayments in the eight weeks before you receive the notice. The meeting with your boss also does not count as official notice; Your employer must provide you with a document that meets the above parameters.
Natalie should inform her employer that asking her to work without pay is a violation of labor laws. It is your employer’s responsibility to properly notify you of the overpayment and upcoming garnishment.
Since her state offers more protection around this issue, Natalie will most likely not face a wage deduction that would leave her unable to pay her bills. Still, your salaries will be affected and you will need to budget accordingly. You may need to cut back on discretionary spending until your paychecks return to normal amounts.
In the future, checking both your pay stubs and your bank statements will go a long way in preventing this type of unexpected loss of income, which will also help you detect if your employer is underpaying you. A 2022 Ernst & Young report found that the average accuracy of a company’s payroll is just 80.15%, meaning you could be missing out on wages owed to you if you don’t monitor your bank balance (4).
If you believe your employer has made illegal deductions from your pay, you can file an administrative claim with your state’s department of labor and, depending on your state, you may be able to file a lawsuit (2).
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United States Department of Labor (1); Thomson Reuters (2); New York Department of Labor (3); Ernst & Young (4)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
