Under Indiana law, employers may make certain deductions from an employee’s final paycheck, but only under specific conditions and for particular purposes. Here is a summary of the key legal provisions:
Permissible Deductions
- Standard Payroll Deductions:
- Federal, state, and local income taxes
- Social Security and Medicare contributions
- Voluntary Deductions (with Employee Consent):
- Insurance premiums (health, life, etc.)
- Repayment of loans made by the employer
- Contributions to charitable organizations
- Purchase of U.S. savings bonds, company stock, or retirement plans (e.g., 401(k), SIMPLE IRA)
- Labor union dues
- Cost of merchandise sold by the employer to the employee
- Employee contributions to a hospital service or medical expense plan
- Payments to an employee’s direct deposit account
Legal Requirements for Deductions
- Written Agreement:
- Any non-standard deduction (i.e., not required by law) must be agreed upon in writing by both the employee and employer.
- The agreement must be signed and delivered to the employer within ten days of its execution.
- The employee may revoke the deduction at any time by providing written notice.
- Limits on Deductions:
- For overpayments, the deduction may not exceed the lesser of 25% of the employee’s disposable earnings for that week or the amount by which the employee’s disposable earnings exceed 30 times the federal minimum wage.
- Final Paycheck Timing:
- Final paychecks must be issued on the next regularly scheduled payday following termination.
Prohibited Deductions
- No Deductions Without Consent:
- Employers cannot make any deductions not required by law or not agreed to in writing by the employee.
- No Withholding for Damages or Losses:
- Deductions for damages, shortages, or losses are generally not permitted unless specifically authorized by law or by a valid written agreement.
Summary Table
| Deduction Type | Allowed? | Conditions/Notes |
|---|---|---|
| Taxes (federal, state, local) | Yes | Required by law |
| Social Security/Medicare | Yes | Required by law |
| Insurance premiums | Yes | With written employee consent |
| Loan repayment | Yes | With written employee consent |
| Charitable contributions | Yes | With written employee consent |
| Company stock/retirement | Yes | With written employee consent |
| Union dues | Yes | With written employee consent |
| Merchandise purchases | Yes | With written employee consent |
| Medical expense plans | Yes | With written employee consent |
| Direct deposit | Yes | With written employee consent |
| Damages/shortages/losses | No | Not permitted without specific legal authorization |
This information is based on current Indiana statutes and guidance for employers regarding final paycheck deductions.
🔴 Immediate Actions (Today or ASAP)
- Review your final paycheck: Carefully check your final paycheck to see if any deductions have been made.
- Identify deductions: Compare each deduction against the list of permissible deductions under Indiana law (taxes, Social Security, Medicare, and any deductions you agreed to in writing).
- Gather documents: Collect all relevant documents such as your pay stubs, employment contract, any written agreements about deductions, and your final paycheck.
- Document concerns: If you notice deductions that seem unauthorized (e.g., for damages or losses without your consent), write down details including amounts, dates, and descriptions.
- Contact your employer: Politely request clarification in writing (email or letter) about any questionable deductions. Keep copies of all communications.
🟡 Short-Term Steps (This Week)
- Send a formal written inquiry: If your employer doesn’t respond or the explanation is unsatisfactory, send a formal letter or email requesting correction or refund of unauthorized deductions. Use clear, polite language and keep a copy.
- Know your rights to revoke consent: If you previously gave written consent for deductions you no longer agree with, send a written notice revoking that consent.
- Check timing of final paycheck: Confirm your final paycheck was issued on the next regularly scheduled payday after your termination, as required under Indiana law.
- Keep all records organized: Maintain a folder (digital or physical) with all paychecks, agreements, correspondence, and notes.
🟢 Strategic Follow-Up (Next 2-4 Weeks or Longer)
- File a complaint if needed: If your employer refuses to correct unauthorized deductions, consider filing a complaint with the Indiana Department of Labor or the U.S. Department of Labor Wage and Hour Division.
- Seek legal advice: If the issue persists or is complex, consult a labor/employment law attorney to discuss possible legal action.
- Monitor future paychecks: If you remain employed or get re-employed, continue to monitor payroll deductions to ensure compliance.
- Know deadlines: Be aware of any statute of limitations for wage claims in Indiana (generally 2 years for written contracts, 3 years for wage violations).
Your Legal Rights
- Right to lawful deductions only: Under Indiana law, your employer may only deduct from your final paycheck for taxes, Social Security, Medicare, and deductions you agreed to in writing.
- Consent required: Any non-standard deduction must be agreed upon in writing, signed by you, and delivered to your employer within 10 days.
- Right to revoke consent: You can revoke any voluntary deduction at any time by written notice.
- Limits on deductions: For overpayments, deductions cannot exceed 25% of your disposable earnings or reduce your earnings below 30 times the federal minimum wage per week.
- Timely payment: Your final paycheck must be paid on the next scheduled payday after termination.
- Prohibited deductions: Employers cannot deduct for damages, shortages, or losses without your consent or specific legal authorization.
Where to Get Help
- Indiana Department of Labor: File complaints or ask questions about wage laws. Website: https://www.in.gov/dol/ Phone: (317) 232-2655
- U.S. Department of Labor Wage and Hour Division: For federal wage law issues. Website: https://www.dol.gov/agencies/whd Phone: 1-866-4US-WAGE (1-866-487-9243)
- Legal Aid Organizations in Indiana: If you cannot afford a lawyer, contact Indiana Legal Services: https://www.indianalegalservices.org/ Phone: 1-844-243-8570
- Local Bar Association Referral: Contact the Indiana State Bar Association for lawyer referrals: https://www.inbar.org/
- Keep Records: Save all pay stubs, agreements, correspondence, and notes to support your claim.
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