Indiana follows at-will employment and right-to-work laws and sets regulations for minimum wages, overtime pay, and tipped employees. As an employer, it’s important to understand these regulations to ensure compliance with state and federal laws. This includes complying with the Indiana minimum wage and ensuring that employees receive proper compensation for all hours worked, including overtime.
So, what does this involve, exactly? What is the Indiana minimum wage? And what are the rules for overtime and tips in Indiana?
Let’s find out.
In today’s post, we will explore everything you need to know about the Indiana minimum wage to help you maintain compliance and support fair labor practices within your organization.
- History of the U.S. Minimum Wage
- Indiana Minimum Wage: Current Rates
- Are There Any Exemptions to the Indiana Minimum Wage?
- Who Enforces the Indiana Minimum Wage?
- What Other Indiana Labor Laws Are There?
- Best Practices for Employer Wage Law Compliance
- How Factorial Can Help Your Business
- Centralize payroll management and get ahead🚀
History of the U.S. Minimum Wage
According to a 2019 study by the Economic Policy Institute, the value of the federal minimum wage has dropped 17% in the past ten years, and 31% since 1968. A big factor contributing to this decline is that the national minimum wage has not gone up since 2009, representing the longest period in U.S. history without an increase, despite the rising cost of living.
Before we explore the Indiana minimum wage, let’s take a look at the history of the U.S. minimum wage to help us understand the broader context and the impact of prolonged stagnations like this on workers and employers.
Key Milestones in the History of the U.S. Minimum Wage
- 1938: Fair Labor Standards Act (FLSA) established the first federal minimum wage of $0.25 per hour, providing a baseline income for workers and laying the groundwork for future labor standards.
- 1950: Minimum wage increased to $0.75 per hour, reflecting post-war economic growth and an improvement in living standards.
- 1968: Minimum wage reached its highest value at $1.60 per hour, adjusted for inflation. This increase ensured wages kept up with productivity and the cost of living, reducing poverty significantly.
- 1981: Minimum wage set at $3.35 per hour, remaining unchanged for almost a decade, amidst economic challenges. This wage stagnation led to a decrease in purchasing power and an increase in income inequality.
- 1997: Increase to $5.15 per hour, part of a series of raises during the Clinton administration. This increase represented a boost in income for low-wage workers but still lagged behind inflation and cost of living increases.
- 2009: Final increase to $7.25 per hour, where it has remained until now, despite rising living costs. This is the longest period in U.S. history without an increase, significantly eroding the real value of the minimum wage. There are currently no plans to increase the federal minimum wage.
Indiana Minimum Wage: Current Rates
Most Indiana employers and employees are covered by the minimum wage and overtime provisions of the federal Fair Labor Standards Act (FLSA). However, those not covered under federal law may still be covered by the Indiana Minimum Wage Law. Additional protections in Indiana include payment frequency requirements and mandates for final wages, as we will see later in this post.
According to the Indiana Minimum Wage Law, the state minimum wage is aligned with the federal minimum wage, currently set at $7.25 per hour. This applies to employers with two or more employees. Essentially, this means that employers must pay employees at least the minimum wage for all hours worked. Employers must also pay employees 1.5 times their regular rate of pay when employees work more than forty (40) hours during a work week.
Certain categories of workers are exempt from this limit, including tipped employees, students, and young workers. More on this below.
Finally, the last increase to the Indiana minimum wage was in 2009, when it increased from $5.15 per hour. The Indiana minimum wage has not increased since then, and there are no plans to increase it beyond the federal standard any time soon, despite various proposals and discussions within the state legislature.
Municipal Minimum Wage Ordinances
A growing number of cities and counties have also implemented their own local minimum wage limits, often higher than both state and federal minimum wage rates. These municipal-level minimum wages reflect the unique economic circumstances of specific localities. Examples include Seattle’s minimum wage of $19.97 per hour, San Fransisco’s municipal minimum wage rate which rose to $18.67 per hour this month, and New York City which has set the minimum rate in the metropolis at $16.00 per hour.
Unfortunately, Indiana state does not currently have any municipal minimum wage ordinances. This means that cities, towns, and counties within Indiana cannot set minimum wages that differ from the state or federal minimum wage. As a result, the minimum wage throughout the entire state is aligned with the federal minimum wage of $7.25 per hour.
Are There Any Exemptions to the Indiana Minimum Wage?
While the Indiana minimum wage applies to most workers over the age of 18 who are employed by a business with two or more employees, there are certain exemptions that you need to be aware of.
Specifically, there are three notable exemptions to the Indiana minimum wage: tipped workers, students, and workers under 20.
Here’s an overview of these exemptions:
- Tipped employees. You can pay tipped employees a reduced rate of $2.13 per hour if their tips bring their total earnings to at least $7.25 per hour. If they don’t, then you must cover the tip deficit.
- Student workers. You can pay full-time college or high school students 85% of the Indiana minimum wage provided those students are enrolled in a work-study program or work 20 hours (or less) per week. In this instance, the minimum wage would currently equal $6.16.
- Young workers. In line with federal minimum wage requirements, you can pay employees under 20 a reduced rate of $4.25 per hour during the first 90 days of employment. After 90 days, you must pay them the full Indiana minimum wage.
Who Enforces the Indiana Minimum Wage?
The Indiana minimum wage and all other wage laws in the state are enforced by the Indiana Department of Labor (IDOL), specifically the Wage and Hour Division. IDOL is tasked with ensuring compliance with minimum wage laws, overtime pay, child labor laws, and the timely payment of wages. The department is also responsible for investigating all employee wage complaints and disputes and conducting all audits of employer records. Finally, IDOL also provides employers and employees with resources, guidance and support regarding their rights and responsibilities under Indiana wage laws.
What Other Indiana Labor Laws Are There?
On top of the Indiana minimum wage, the state has a number of additional labor laws that employers need to understand as these can have an impact on an employee’s wages.
Let’s explore these additional Indiana wage laws in a bit more detail so you can make sure your employee handbook meets all requirements.
Right-to-Work Law
Indiana is one of the few states in the country that prohibits the negotiation of collective bargaining agreements between public employers and employee unions. However, public employees still have the right to organize and join employee associations. This is known as Indiana’s “Right-to-Work” law, which prohibits the use of union membership (or non-membership) as a condition for getting hired.
Time Tracking and Record-Keeping
Indiana follows federal guidelines for time tracking and recordkeeping, in line with the FLSA.
Specifically, under the FLSA, employers must maintain accurate records of all hours worked and wages paid to employees.
These records must include the following information.
Employee information:
- Full name and Social Security number.
- Address, including zip code.
- Birth date, if younger than 19.
- Sex and occupation.
Work hours and pay:
- Time and day of the week when the employee’s workweek begins.
- Hours worked each day.
- Total hours worked each workweek.
- The basis on which you pay an employee’s wages (e.g., “$9 per hour”).
- Regular hourly pay rate.
- Total daily or weekly straight-time earnings.
- Total overtime earnings for the workweek.
- All additions to or deductions from the employee’s wages.
- Total wages paid each pay period.
- Date of payment and the pay period covered by the payment.
- A record of all employee start and end times, meal breaks, and any other periods of absence.
These records must be kept for at least three years. They must also be accessible for inspection by the U.S. Department of Labor’s Wage and Hour Division.
The best way to keep track of all this information is by using an electronic or manual time-tracking system to accurately record each employee’s work hours. More on this below.
Family & Medical Leave
Indiana does not have its own state-specific Family and Medical Leave Act (FMLA). Instead, employees in Indiana are covered under the federal Family and Medical Leave Act (FMLA). Under this federal Act, eligible employees are entitled to up to 12 weeks of unpaid, job-protected leave per year while maintaining their health insurance coverage. This law covers all government agencies, elementary and secondary schools, and companies with 50 or more employees. FMLA covers a wide range of situations, including illness, childbirth, adoption, and military or family circumstances.
Payment of Wages
Employers in Indiana must pay employees on regular paydays. This must be done on a semi-monthly or biweekly basis. Paydays must be specified in advance, and employers must provide written notice of any changes to pay schedules. The state also mandates that final wages must be paid by the next scheduled payday when an employee is terminated or resigns.
Finally, employers must provide employees with a statement of hours worked and wages paid (a pay stub).
If an employee believes that their employer has violated any of these rights, they can file a complaint with the Wage and Hour Division.
Wage Deductions
According to Indiana law, you cannot make deductions from an employee’s wages without written consent, unless classified as a permitted deduction. Permitted deductions include those required by law (such as federal and state taxes) or those voluntarily authorized by the employee (such as union dues, insurance premiums, loan repayments and charitable contributions).
Overtime
Indiana adheres to the federal overtime regulations set by the Fair Labor Standards Act (FLSA). Specifically, Indiana overtime law requires that non-exempt employees receive overtime pay equal to 1.5 times their regular hourly pay for any hours worked over 40 in a week (overtime). These hours must be tracked and recorded and they must be stored for a period of at least three years.
Indiana does not have additional state-specific overtime laws beyond those stipulated by the FLSA.
Meal and Rest Breaks
Indiana’s employment laws include federal guidelines for work breaks, ensuring employees have time to rest and recharge during their shifts.
Here’s what you need to know:
- Meal breaks. Indiana does not require employers to provide meal breaks for adult workers. However, employees under the age of 16 must receive a 30-minute break for every 5 consecutive hours of work.
- Short breaks. Indiana law also does not mandate short rest breaks (typically 5 to 20 minutes). However, federal standards encourage employers to offer these breaks. When provided, employers must compensate these short durations as work time.
- Health and safety. Finally, for certain industries, such as those involving continuous operations or heavy machinery, breaks may be regulated by specific health and safety requirements (including working hours limits) to prevent accidents and ensure worker wellbeing.
Employers in Indiana should ideally adopt break policies that exceed minimum requirements to promote a positive work environment and increase employee satisfaction.
Equal Pay
Finally, Indiana does not have a state-specific equal pay act. Instead, it relies on federal laws to address pay discrimination issues. The primary federal law governing equal pay is the Equal Pay Act of 1963, which also aims to ensure that all employees receive equal pay for equal work (also known as pay parity).
Specifically, according to the Equal Pay Act, all employees have a right to pay equity and protection against sex-based compensation discrimination. This means that if multiple individuals are performing substantially equal jobs that require similar levels of skill, effort, and responsibility, and under similar working conditions, then you must pay them the same wage or salary, regardless of gender. All forms of pay are covered by this law, including salary, overtime pay, bonuses, stock options, profit sharing and bonus plans, life insurance, vacation and holiday pay, cleaning or gasoline allowances, hotel accommodations, reimbursement for travel expenses, and additional fringe benefits.
Best Practices for Employer Wage Law Compliance
And that’s pretty much everything you need to know about the Indiana minimum wage and the state’s additional wage laws. All that’s left now is to make sure that your business meets the legal requirements of these laws.
With this in mind, we’ve put together a handy list of essential tips and best practices to help you protect your business from potential non-compliance fines and penalties. And if legal compliance doesn’t get you jumping out of your seat, keep in mind that these practices will also help you foster a positive and compliant work environment for your employees. That way, you can attract and retain top talent, boost employee morale, and enhance overall productivity and workplace harmony!
Understand the Minimum Wage
As an employer in Indiana, it’s crucial to stay updated on the current minimum wage rates. These can vary based on employee status (but not location). Familiarize yourself with the minimum wage requirements for your specific industry to ensure you’re paying your employees the correct amount.
Implement Accurate Payroll Practices
Maintain accurate and up-to-date payroll records so that your payroll calculations are always processed correctly. Regularly review your payroll records to identify any inconsistencies or errors. Use payroll software to streamline payroll processes and minimize errors. You should also create a payroll checklist to keep you on track during each payroll cycle. That way, you won’t miss any important steps, such as verifying employee hours, ensuring correct pay rates and calculating payroll tax deductions.
Classify Employees Correctly
Properly classify employees as either exempt or non-exempt under the minimum wage regulations. This classification determines whether you must offer overtime pay to an employee who works extra hours. Carefully review the duties and responsibilities of each employee to determine their exempt or non-exempt status.
Track Overtime Hours
Accurately track overtime hours worked by non-exempt employees. Implement a system for employees to report overtime hours, such as using timesheets or electronic timekeeping systems. Make sure you calculate and pay overtime at the correct rate.
Provide Meal and Rest Breaks
Employers must provide non-exempt employees with meal and rest breaks. Make sure employees have access to designated break areas and take mandated breaks throughout their workday.
Maintain Accurate Records
Finally, it’s important to maintain accurate and up-to-date records of all employee work hours and wages. In addition, regular internal and external audits can help you identify and fix mistakes so that everything runs smoothly and compliantly.
Using employee record management software can make this easier. These systems help you maintain accurate and reliable records so that you can focus on other important parts of your business while staying compliant with Indiana wage law.
How Factorial Can Help Your Business
Ensuring compliance with Indiana wage laws is crucial for employers to avoid potential penalties and legal disputes. Factorial can help you navigate the complexities of Indiana’s employment guidelines and streamline your entire payroll process.
- Automated payroll calculations. Firstly, Factorial’s automated payroll system eliminates manual calculations, reducing the risk of errors and ensuring accurate compensation for all employees. It automatically factors in Indiana minimum wage requirements, overtime pay, holiday pay, and other relevant regulations to ensure compliance with Indiana wage laws.
- Real-time tracking. Secondly, Factorial’s time tracking feature enables real-time monitoring of working hours, including overtime. This allows you to maintain and generate accurate records and reports and identify and address any issues promptly, ensuring compliance with overtime and time-tracking requirements.
- On-demand pay. Thirdly, Factorial’s on-demand pay feature allows employees to access their earned wages between pay periods, providing them with financial flexibility and enhancing employee satisfaction.
- Secure payroll processing. In addition, Factorial employs robust payroll security measures to safeguard sensitive employee data.
- Comprehensive payroll reporting. Finally, Factorial generates detailed payroll reports, providing valuable insights into employee compensation, overtime trends, and overall payroll expenses.
By leveraging Factorial’s comprehensive payroll solution, employers can effectively manage payroll, comply with Indiana wage laws, and ensure that their employees are compensated in line with Indiana minimum wage rates, fostering a positive and compliant work environment for all.
