Many Indiana employees are faced with a situation where money is being deducted from their pay for one reason or another. It forces many to ask, is this legal? The answer more often than not is no. For payroll deductions to be in compliance with Indiana law, there are many technical requirements that must be met by your employer. These requirements, whether known or unknown by the employer, are not often met. Further, a deduction from your paycheck can only be made for very specific purposes.
In Indiana, an employer may only withhold portions of an employee’s paycheck under limited circumstances. These withholdings are covered under the Indiana Wage Deduction Statute, I.C. 22-2-6-2.
If deductions are being made from your paycheck for missing inventory, for damage to equipment or tools, or for the use of equipment or tools, those deductions are illegal. For a deduction to be valid, it can only be made for the purpose of paying one of the following:
- The premium on a policy of insurance obtained for the employee by the employer.
- A pledge or contribution of the employee to a charitable or nonprofit organization.
- The purchase price of bonds or securities, issued or guaranteed by the United States.
- The purchase price of shares of stock of the employer.
- Dues to become owing by the employee to a labor organization of which the employee is a member.
- The purchase price of merchandise sold by the employer to the employee, at the written request of the employee.
- The amount of a loan made to the employee by the employer and evidenced by a written instrument executed by the employee. This allowed deduction is subject to specific limits.
- Contributions, assessments, or dues of the employee to a hospital service or a surgical or medical expense plan or to an employees' association, trust, or plan existing for the purpose of paying pensions or other benefits to said employee or to others designated by the employee.
- Payment to any credit union, nonprofit organizations, or associations of employees of such employer organized under any law of this state or of the United States.
- Payment to any person or organization regulated under the Uniform Consumer Credit Code (IC 24-4.5) for deposit or credit to the employee's account by electronic transfer or as otherwise designated by the employee.
- The premiums on policies of insurance and annuities purchased by the employee on the employee's life.
- The purchase price of shares or fractional interest in shares in one (1) or more mutual funds.
- A judgment owed by the employee if the payment: (A) is made in accordance with an agreement between the employee and the creditor; and (B) is not a garnishment under IC 34-25-3.
Even if the amount being deducted from your paycheck is for one of the permissible reasons above, the employer must also meet strict technical requirements for the deduction to be legal. Specifically, there must be a written assignment of wages. To be a legal deduction, all the following requirements must be satisfied:
- The assignment of wages (deduction) must be in writing;
- The assignment must be personally signed by the employee;
- The assignment must state that it is revocable at any time by the employee by giving written notice to the employer;
- The assignment must be agreed to in writing by the employer; and
- An executed copy of the assignment must be delivered to the employer within ten days of its execution.
Too often, employers make deductions from the pay of their employees that do not meet the strict requirements above and they are therefore acting in violation of Indiana law by committing wage theft.