VOICES FROM THE INDUSTRY: Employers should prepare for strict Indiana wage law

June 4, 2007

It could happen to any business owner. A new employee is hired and promised two weeks of vacation per year. The employee doesn't use the vacation time. Months later, she is fired for theft. Soon after, the company is presented with a bill for $6,000, the value of two weeks of the employee's unpaid vacation time, plus two times that amount in liquidated damages-in addition to the claimant's attorneys' fees.

This scenario may represent a good outcome for the former employee, not to mention her attorney, but for the unwitting business owner who believed an oral agreement was good enough, it is decidedly less favorable.

A strict Indiana law, the Indiana Wage Payment Statute (and its companion, the Wage Claims Statute), works hard to ensure that employees receive all wages they have earned when they leave a job, whether they leave voluntarily or not. Those wages may include vacation time, commissions and severance or bonuses.

If a company has no written policy in place, default rules come into play. For example, vacation time accrues pro rata from Day One, continues to accrue from year to year without a cap if unused, and must be paid out upon termination of employment. A company that is found to have violated the law could be forced to pay up to 200 percent of the original unpaid amount on top of the original vacation pay due, as defined by the default rules. If the case were to explode into a class-action lawsuit, the company could face tens of thousands of dollars in damages.

This sounds harsh-and it is. The Indiana Wage Payment Statute and Wage Claims Statute are unforgiving laws with very clear consequences. Plaintiffs' lawyers are aware of those consequences, and some even focus their practice exclusively on wage violations, actively pursuing negligent companies and bringing class-action lawsuits against them.

How can you avoid unknowingly violating the law and paying the price several times over? Consider these tips.

Learn about the law

The Indiana Wage Payment Statute and Wage Claims Statute are broad in scope. They apply to both hourly and most salaried employees, to current employees, those who are terminated and those who quit voluntarily, and to various types of compensation.

Under the law, "wages" can include vacation pay, bonuses, commissions, certain types of severance pay, and some things that may surprise you. For example, employers often deduct from employee wages for cash-drawer shortages, lost tools or damaged property. These deductions are unlawful under Indiana law. If a company has made them, and is found to have violated the Indiana Wage Payment Statute, it can be assigned treble damages for the amount deducted from a former employee's paycheck and made to pay the employee's attorney fees incurred in bringing suit.

The law is more stringent than many other states' laws in that it has no goodfaith defense: There's no room for good excuses. A company has either violated the law or it has not.

To learn more about the law, consult the Employment Law Handbook published by the Indiana Chamber of Commerce and visit the Indiana Department of Labor's Web site at www.in.gov/dol.

Create an employee handbook

One of the best ways for a company to protect both its employees and its business is to publish a policy. An oral policy simply will not suffice.

If a company clearly presents its own policy in a written handbook, and an employee provides a written acknowledgement of receipt of that handbook, the company's policy takes precedence over the default rules.

That doesn't necessarily give a company carte blanche to dictate the terms of its policy. An experienced employment law attorney can help companies wade through the rules and establish standard practices and a solid policy that will protect both the company and the people who work there.

Educate new employees

Make sure employees understand the policy before they sign off on it. Consider holding a formal orientation for every new hire. Establish a consistent process for informing new employees about company policies. Collect written acknowledgements of receipt of the policy from every staff member.

Train your staff

Once a policy has been established, make sure the staff understands it and knows how to enforce it. This applies to human resources personnel, payroll staff, managers and any other employees involved in implementing employee policies and calculating amounts due.

Stay up-to-date

Laws frequently change, so work with counsel to review and update the policy manual at least every two years.

When you consider the stringent nature of the Indiana Wage Payment Statute and Wage Claims Statute, the current legal climate, the cost of negligence and the value of creating a published company policy, it becomes clear that this is one case where an ounce of prevention in the present could be worth many pounds of cure in the future.

"Ted" Hollis is a partner in the labor and employment practice group at the Indianapolis office of Baker & Daniels LLP. His practice focuses on employment counseling, including in the prevention and resolution of employment law disputes. Views expressed here are the writer's.
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