Indiana Overtime Laws: Employer Requirements & Compliance Checklist

When it comes to calculating overtime, employers in Indiana need clear guidance to avoid compliance pitfalls and keep payroll processes running smoothly. Staying ahead of wage and hour regulations helps businesses protect themselves from penalties while ensuring fair pay practices.

This article breaks down Indiana overtime requirements, including the $7.25 minimum wage, the 40-hour workweek threshold, and federal exemptions. Let's get into it!

Understanding Overtime Requirements in Indiana

Indiana follows the Fair Labor Standards Act (FLSA) for overtime regulations. Non-exempt employees working more than 40 hours in a workweek must receive overtime pay at 1.5 times their regular hourly rate. Employers are responsible for tracking hours accurately and ensuring employees receive the correct compensation for overtime work.

The state's minimum wage is $7.25 per hour, matching the federal minimum. Non-exempt employees earning this wage must still meet the 40-hour threshold to qualify for overtime pay. Employers should monitor employee classifications carefully, as incorrect labeling of exempt and non-exempt workers can result in penalties.

Determining Employee Classification

Exempt vs. Non-Exempt Employees

The primary difference between exempt and non-exempt employees is overtime eligibility. Non-exempt employees must receive time-and-a-half pay for any hours worked over 40 in a single workweek. Exempt employees, on the other hand, do not qualify for overtime if they meet specific job duty and salary requirements.

Under the FLSA, three main categories define exempt employees:

Executive Employees: These employees must oversee a department or the entire business, regularly manage at least two full-time employees, and make decisions about hiring or firing.
Administrative Employees: Their primary duties must involve office or non-manual work related to business operations, with significant decision-making responsibilities.
Professional Employees: This category includes individuals performing work that requires advanced education, such as lawyers, doctors, or engineers.

Indiana-Specific Requirements

Indiana follows federal standards but applies its own employer-size rule. Businesses with two or more employees must adhere to Indiana’s wage and hour laws, including overtime requirements. Smaller employers with fewer employees may fall outside state rules but remain subject to federal coverage if they qualify under the FLSA.

Regularly reviewing employee roles and pay is a key step for employers. Misclassifications can lead to penalties, unpaid wages, and compliance headaches. Staying proactive helps ensure your business meets both state and federal standards.

Calculating Overtime Pay

Overtime pay in Indiana follows a straightforward formula. Employers must calculate 1.5 times an employee's regular hourly rate for every hour worked over 40 in a single workweek. Getting this calculation right ensures compliance and prevents payroll disputes.

Here's how to compute overtime pay step-by-step:
1. Identify the employee's regular hourly rate.
2. Multiply the hourly rate by 1.5 to determine the overtime rate.
3. Apply the overtime rate to all hours worked over 40 during the workweek.

For example, an employee earning $20 per hour would have an overtime rate of $30 per hour. If they work 45 hours in a week, the additional five hours must be paid at $30 each, resulting in $150 of overtime pay on top of their regular wages.

Defining "Hours Worked"

Not every activity counts toward hours worked. Employers need to know which tasks are compensable to calculate overtime correctly.

Training Time: Mandatory training directly related to the job must be paid. Optional training outside scheduled hours, however, may be unpaid if it meets strict criteria, such as being voluntary and unrelated to the employee's current duties.
On-Call Time: If an employee must remain at a specific location or respond immediately when called, that time is compensable. On-call time spent at home, without significant restrictions, is usually unpaid unless actual work is performed.
Travel Time: Commuting to and from work is not compensable. However, travel between job sites or trips required during the workday are considered work hours and must be included in overtime calculations.

Employers should document all compensable time accurately, as failing to capture eligible hours can lead to compliance issues.

Paying for Unauthorized Overtime

Even when employees work overtime without prior approval, employers are legally required to pay for those hours. Non-payment violates wage and hour laws and can result in penalties.

To manage unauthorized overtime, businesses often rely on clear policies and enforcement. Disciplinary actions, such as warnings or formal notices, can address employees who exceed approved hours without permission. However, withholding pay for worked hours is never allowed.

By staying precise with calculations and clearly defining compensable hours, employers can ensure fair payment for employees while maintaining compliance with Indiana's overtime laws.

Managing Compensatory Time

Compensatory time, often referred to as "comp time," allows employees to exchange extra hours worked for future time off. In Indiana, the use of comp time is largely regulated by federal guidelines, with specific allowances for public sector employers. Private sector employers cannot substitute comp time for overtime pay unless clearly authorized by law.

Holiday Comp Time vs. Overtime Comp Time

Indiana distinguishes between holiday comp time and overtime comp time, and the two operate under separate rules:

Holiday Comp Time: Employees working on state-recognized holidays may opt for holiday comp time instead of extra pay. This is always calculated at a straight rate, meaning one hour worked equals one hour of comp time. Holiday comp time does not count toward the 40-hour threshold for overtime eligibility.
Overtime Comp Time: Public sector employees covered by specific regulations may be granted comp time instead of overtime pay. This must be accrued at the time-and-a-half rate, matching the federal overtime pay requirement. For every hour of overtime, the employee earns 1.5 hours of comp time.

Employers should clearly communicate these distinctions to avoid confusion and ensure compliance.

Rules for Offering Comp Time in Indiana

Employers offering comp time must follow strict rules, particularly in public sector workplaces. These rules outline when and how comp time can replace overtime pay:

Public Sector Employees Only: In Indiana, comp time in place of overtime pay is generally limited to public sector employees. Private employers must pay overtime in wages unless a specific exemption applies.
Employee Agreement: Employers must secure a voluntary agreement from the employee before offering comp time instead of overtime pay. This agreement should be documented to prevent misunderstandings.
Accrual Caps: Comp time accrual is subject to limits. Public sector employees can accrue up to 240 hours, or 480 hours for certain roles like emergency response. Employers cannot require employees to work beyond these caps without paying overtime in cash.
Reasonable Use: Employees should be allowed to use accrued comp time within a reasonable timeframe. Employers may deny requests only if the absence would cause significant operational disruptions.
Payout Requirements: Any unused comp time must be paid out in cash under specific circumstances, such as when an employee separates from the organization. The payout rate must reflect either the employee's current hourly rate or their average rate over the past three years, whichever is higher.

Employers managing comp time policies must ensure compliance with both federal and state regulations. Transparent policies and recordkeeping are key to avoiding disputes and maintaining employee trust.

Recordkeeping and Timesheets

Keeping accurate time and pay records is a non-negotiable requirement under the FLSA. Employers must document every hour employees work, leaving no room for guesswork. This includes regular hours, overtime, and any time spent on work-related activities outside the workplace, such as remote tasks or after-hours calls.

Tracking all hours ensures compliance and reduces the risk of payroll disputes. Remote or off-site work isn't exempt from recordkeeping rules. If an employee performs job-related tasks from home or any other location, that time must be recorded and compensated accordingly. Employers should use systems or processes that capture this information without gaps.

Breaks and Meal Periods

Breaks and meal periods are treated differently when it comes to compensable hours. Employers must know the distinctions to avoid underpaying employees.

Breaks less than 20 minutes: These are paid as part of the regular workday. Examples include short coffee breaks, restroom breaks, or quick rests. Employees should not clock out during these periods.
Meal periods of 30 minutes or more: Meal breaks are unpaid when an employee is completely relieved of work duties. However, if an employee works through the meal, such as answering emails or taking calls, the time must be paid.

Clear policies regarding breaks and meal periods help set expectations for employees and managers. Consistent enforcement of these policies reduces errors in time tracking and payroll.

Employers should ensure their timekeeping systems are reliable and capable of capturing every compensable hour, including breaks and off-site work. This approach minimizes compliance risks and ensures employees receive accurate pay.

Penalties for Non-Compliance

Ignoring overtime laws in Indiana can create serious financial and legal risks for employers. Enforcement measures are designed to ensure employees receive fair compensation, and violations often come with steep consequences.

Financial Penalties

Employers who fail to comply with overtime requirements must address multiple financial liabilities. These include:

Back pay: Reimbursement to employees for unpaid overtime, calculated at 1.5 times the regular hourly rate for every hour worked over 40 in a workweek.
Liquidated damages: A penalty equal to the back pay amount, doubling the employer's financial burden unless the employer proves the violation was unintentional and made in good faith.
Civil fines: Additional penalties may apply for repeated or willful violations, with fines reaching up to $2,203 per offense under federal guidelines.

Legal disputes can also increase costs, especially when factoring in attorney fees, court expenses, and interest on unpaid wages. Promptly addressing compliance issues reduces the risk of prolonged financial exposure.

Statute of Limitations

Indiana employers must act quickly to resolve potential violations, as employees have up to two years to file wage claims. For willful violations, this window extends to three years. Willful violations occur when an employer knowingly disregards legal obligations or shows reckless disregard for the law. Examples include ignoring updated federal salary thresholds or failing to adjust overtime calculations after policy changes.

Proactive measures, such as regular audits and clear documentation, help employers avoid extended liability and mitigate risks.

Retaliation Prohibitions

Federal law strictly prohibits employers from retaliating against employees who file overtime complaints. Retaliation includes termination, demotion, pay reduction, or creating a hostile work environment. These actions can lead to legal consequences, including reinstating the employee, compensating for lost wages, and additional fines.

For example, an employee who reports unpaid overtime cannot legally be assigned fewer hours or demoted as punishment. Employers must foster an environment where employees feel safe reporting compliance concerns without fear of retaliation.

Regular training for management and maintaining clear wage and hour policies prevent both violations and retaliatory behavior. Staying informed about overtime regulations protects both employees and the business from unnecessary penalties.

Ensuring Compliance with Federal and State Rules

Indiana employers must navigate both federal and state overtime regulations carefully. Whenever federal and state laws differ, the stricter standard applies to ensure employees receive the highest level of protection. This dual compliance approach helps businesses avoid legal exposure and ensures fair treatment for workers.

FLSA Updates and Salary Thresholds

Federal regulations under the FLSA evolve periodically, and staying informed is essential for compliance. Recent changes to exempt employee classifications introduced new salary thresholds. As of July 1, 2024, the minimum annual salary for exempt employees increased to $43,888. On January 1, 2025, it rose again to $58,656. Employers must verify that employees classified as exempt meet both the updated salary requirements and the duties tests outlined under the law.

Conduct regular reviews of employee classifications and payroll records to ensure alignment with federal updates. Non-compliance with these thresholds can lead to misclassification, back pay obligations, and penalties. Businesses should also monitor Indiana-specific requirements to confirm they align with or exceed federal standards.

Industry-Specific Work Periods

Certain industries in Indiana, such as law enforcement and firefighting, follow unique overtime rules under 29 USC 207(k). These professions often operate on irregular schedules, requiring tailored work periods for overtime calculation.

For example, firefighters may operate under a 28-day work period. Overtime eligibility begins only after surpassing a specific number of hours worked during that timeframe. Similarly, law enforcement officers have adjusted work periods based on their roles and schedules. Employers managing these industries must calculate overtime based on the designated period rather than the standard 40-hour workweek.

Reviewing work period frameworks for these industries is critical for compliance. Missteps in applying these rules can lead to payroll disputes, employee dissatisfaction, and legal risks. Accurate tracking of hours worked within the specified period ensures proper compensation and reduces the likelihood of errors.

Indiana Overtime Checklist for Employers

Ensuring compliance with Indiana's overtime laws requires a focused, step-by-step approach. Employers must juggle classification accuracy, time tracking, and proper documentation to meet both federal and state requirements. Here's a practical checklist to help employers stay on track and avoid compliance headaches.

Classification Check

Review every employee role to confirm proper classification under federal and Indiana-specific guidelines. Misclassifications can lead to unpaid wages, penalties, and lawsuits.

Evaluate Job Duties: Compare each position against FLSA exemption categories, such as executive, administrative, or professional roles. Ensure employees meet specific duties tests for each classification.
Verify Salary Levels: Confirm that exempt employees earn at least the updated salary threshold. Reclassify employees who fall below the limit as non-exempt.
Document Classifications: Keep records of how each classification decision was made. Include job descriptions, salary details, and any exemption criteria applied.

Accurate Time Tracking

Capturing every hour worked is non-negotiable. Employers need systems to ensure no time—whether on-site, remote, or after-hours—goes unrecorded.

Use Comprehensive Tracking Methods: Implement reliable timekeeping processes that allow employees to log regular hours, overtime, and any additional work-related tasks.
Account for All Compensable Time: Include time spent on required activities like training, traveling between job sites, or responding to after-hours calls. Exclude commuting time unless specifically compensable.
Monitor Breaks and Meal Periods: Confirm that breaks under 20 minutes are paid and that meal periods are unpaid only when employees are fully relieved of work duties.

Overtime Approval Process

Set clear policies for approving overtime while ensuring all hours worked are paid. Proper planning minimizes unauthorized overtime while keeping employers compliant.

Create a Written Policy: Outline the steps employees must follow to request and receive overtime approval. Define consequences for working unauthorized hours without discouraging accurate time reporting.
Train Managers: Equip supervisors to enforce overtime policies fairly and identify when extra hours are necessary. Managers should never suggest or imply that employees work off the clock.
Always Pay for Hours Worked: Compensate employees for all recorded hours, even if overtime was not pre-approved. Address policy violations through formal disciplinary processes instead of withholding pay.

Compliance with Leave and Holidays

Overtime rules don't pause for holidays or employee leave. Employers must ensure that holiday and leave policies align with overtime regulations.

Separate Holiday Pay from Overtime: Pay employees for hours worked during holidays at their regular rate, and include those hours in overtime calculations if they exceed the 40-hour weekly threshold.
Track Actual Hours Worked: Exclude paid leave from overtime calculations unless the leave involves compensable work-related activities. Double-check holiday work hours to ensure accurate compensation.

Regular Audits

Conducting periodic reviews helps employers catch potential compliance issues before they escalate. Regular audits also ensure practices stay aligned with changing regulations.

Review Payroll Records: Check for accurate calculations of overtime rates, timely payments, and proper classification of hours worked.
Reevaluate Classifications: Confirm that exempt employee roles still meet both duties tests and salary requirements, especially if job responsibilities or pay structures have changed.
Stay Current on Legal Changes: Monitor updates to federal and Indiana-specific overtime laws, including salary thresholds and industry-specific exemptions.

Documentation

Strong recordkeeping supports compliance and protects employers in case of audits or disputes. Accurate, detailed records are required under FLSA regulations.

Retain Records for the Required Timeframe: Store payroll records, timecards, and work schedules for at least three years to meet federal requirements.
Include Complete Details: Ensure time records reflect all hours worked, including overtime, regular pay rates, and any adjustments. Keep documentation of employee classifications and any related correspondence.
Perform Regular Record Audits: Review stored records periodically for accuracy, consistency, and completeness. Address missing or incorrect information immediately to avoid compliance risks.

By following each step carefully, employers can maintain compliance with Indiana's overtime requirements while fostering trust and transparency with employees.

Managing overtime rules in Indiana requires careful attention to detail and a commitment to compliance. At GoCo, we understand the challenges employers face in navigating these complex regulations. Book a demo with us today to learn how our powerful HR software can simplify overtime tracking, ensure accurate payroll, and keep your business compliant with Indiana's wage and hour laws.