Legal Line: Frequently Asked Questions by Cost-Cutting Employers

May 16, 2011

Indiana employers have been working diligently to reduce their expenses and create more lean and efficient business operations in this current economic climate. Employee wages and staffing needs are often identified as areas for improvement as employers attempt to cut costs and enhance efficiency. Accordingly, this article attempts to answer five questions frequently asked by Indiana employers when considering these issues.

Can I unilaterally change an employee’s rate of pay?

Unless covered by a collective bargaining agreement or specifically set out in an employment contract, an employer can change an employee's rate of pay as long as the reduction does not bring an employee's wage below the applicable federal or state minimum wage. The employer must notify the affected employee prior to his working at the reduced rate. The employee must then accept the lower wage rate or quit. If the employee quits, he may or may not be able to collect unemployment benefits depending on the employer’s reasons for and reasonableness of the reduction.

If an employee engages in misconduct, can I impose a fine on the employee as discipline and take it out of his or her paycheck?

No. Under Indiana law, an employer is not permitted to fine an employee and deduct the amount from his pay.

Can I make deductions from an employee’s paycheck?

Indiana law is very strict about deductions from an employee’s paycheck. In fact, Indiana law requires three conditions to be met in order for a wage deduction to be valid:

1. The agreement for the deduction must be in writing, signed by the employee, by its terms revocable at any time by the employee upon written notice, and agreed to in writing by the employer.

2. A copy of the deduction agreement must be delivered to the employer within 10 days of its execution.

3. Only certain categories of deductions are allowed, including premiums on an insurance policy; contributions to a charitable organization; purchase price of bonds, securities or stock of the employing company; labor union dues; purchase price of merchandise sold by the employer to the employee; amount of loan made to the employee by the employer; contributions of the employee to a hospital service or medical expense plan; payment to an employee's direct deposit account.

With respect to uniforms, Indiana law does not allow employers to deduct the cost of mandatory uniforms from an employee's paycheck. However, it does allow employers to deduct the purchase price of merchandise sold by the employer to an employee if it is at the request of the employee. Therefore, if the uniform is optional and the employee makes a written request to purchase the uniform provided by the employer, the cost may be deducted from the employee’s wages. This exception does not apply where the uniforms are provided by a uniform company for a weekly rental and laundering fee.

Can I save paper and printing costs by providing pay statements to my employees electronically?

Yes. Indiana law requires employers to provide employees with statements of their hours worked, wages paid, and deductions taken. However, the method of providing the statement is not specified. Therefore, an electronic method would not violate Indiana’s wage and hour statutes. Employers can also save additional costs by requiring employees to accept payment of wages by direct deposit to the employee’s bank.

If I terminate an employee as part of a reduction in force, when is the employee’s final paycheck due?

As a general rule, final wages must be paid on or before the next regularly scheduled payday on which the employee would have been normally paid had the employee remained employed.


This article was written by Keith A. Sermersheim, a partner with Rudolph, Fine, Porter & Johnson, LLP ( in Evansville, Indiana. For additional questions or information, you may contact Keith at (812) 422-9444 (e-mail: His practice areas include Employment and Discrimination Law, Corporate Law and Business Law. This article is intended solely as an information source and its contents should not be construed as legal advice. Readers should not act upon the information presented without professional counsel.