labor laws

How Indiana Labor Laws Regarding Vacation Pay Can Affect Your Business

As an employer in the state of Indiana, you are not required to offer paid or even unpaid vacation time to your employees.  That being said, there are some laws that govern vacation pay and how it is administered.  If you currently do not have a vacation policy in effect, there are a few things that you may consider.  

Why Paid Vacation is Important

Most employers offer two weeks, or ten days paid vacation for employees.  Not only are vacations good for the employee’s physical and mental health, it is also a great morale booster and an effective recruiting tool.  Employees who enjoy more of a work/life balance, are more productive, motivated, and have fewer problems with attendance and other performance issues.  

Indiana Labor Laws and Vacation Pay

Also known as Paid Time Off (PTO), employers in Indiana are not required to offer vacation, sick, holiday, or personal days, but if any of this is offered, there needs to be a written policy or contract defining how vacation is accrued, paid, or not paid.  It is important that your policy be well-defined and clearly understood.

  • Separation From the Company 
    • If your vacation policy states that upon separation, accrued vacation is paid to the employee, by Indiana Labor Laws, it must be paid upon separation.  If your policy states that upon separation, accrued vacation is forfeited, the employee, by Indiana Labor Laws, will not be paid.  However, if there is no provision in the policy or contract, by law, the employee will be paid his accrued vacation upon separation.  
  • Vacation Accrual Cap
    • As an employer, you can lawfully cap the amount of paid vacation that your employees accrue.  However, this has to be stated within your company policy, handbook, or contract.  Failure to define the cap could result in uncapped payment.  
  • Use It or Lose It
    • Some companies have a policy on using or not using accrued vacation.  If the employee does not use the vacation time in a certain amount of time, he forfeits the paid leave.  By Indiana Labor Laws, the Use it or Lose it policy is legal, so long as it is written and well-defined in the company policies or employee contracts.  Provision must also be made for the employee to have the time available to him for this statute to apply.

Indiana Vacation Pay Compliance

Indiana Labor Laws leave plenty of room for employers to be flexible with their policy on vacation leave.  Employers can either offer paid or unpaid vacation time, or not offer any type of vacation time off.  They can choose the rate of accrual, such as accrual of one day per month, or ten days after one year of employment.  Employers can also choose to pay or withhold accrued vacation upon an employee’s separation.  Companies can set limits on accruals, or set policies for how not using your vacation time is handled. 

The primary takeaway is that policies or contracts need to be clearly defined so that the expectation of both the employer and employee are the same.   If you currently do not have a policy in place, be sure to consider how any changes would affect current employees. Also be sure that they are counseled on the policies before they go into effect.  

At ASAP Payroll, we offer full service payroll, human resources, and recruiting services, as well as many other additional functions that can help your business run smoothly.  Contact us today to see how we can help.

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