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Indiana PTO laws: A Full-fledged Guide on Indiana PTO Payout Laws

Like every other state, Indiana has a comprehensive legal framework around paid time off (PTO) and additional vacation time. You must be familiar with the Indiana PTO payout laws as an employer.

Indeed, you are expected to be aware of regulations that govern the rights and obligations towards you regarding various types of leaves, such as vacation, sick leave, family leave, and more.

Employers and employees benefit from understanding these regulations as they clarify leave accrual, payout, and usage issues. This article will explore Indiana PTO payout laws and how they are crucial for maintaining a healthy work-life balance and fostering positive employer-employee relationships.

Indiana has several types of PTO, but most depend on providing flexibility for employers to establish their policies. There are some federal regulations in place, too, such as FMLA (Family and Medical Leave Act of 1993), to protect certain rights and job security for employees.

Here are common types of PTO Indiana allows:

1. Holiday leave

Also known as paid time off for holidays, these leaves are not mandated by the Indiana PTO payout laws. Employers are not obligated to provide paid holiday leaves, and individual employers typically determine this.

Still, most companies provide paid holidays as part of their benefits package for better employee engagement. As an employer, you should mention the specific holidays observed and the terms of eligibility in employment contracts or company policies.

It will help employees to understand which holidays are recognized and whether they are entitled to paid time off on those days.

2. Sick leave

Sick leaves are the ones employees take when they are not feeling well or recovering from any medical condition. Indiana does not require employers to offer paid sick leave to their employees. The decision to provide paid sick leave in Indiana and its associated terms, such as accrual rates and usage policies, are generally left to the employer’s discretion.

3. Bereavement leave

Bereavement leave allows employees to take time off to cope with the loss of a loved one. It is not a mandated PTO and individual company policies typically determine the availability and terms of bereavement leave.

4. Vacation leave

As an employer in Indiana, you are not obligated to provide paid vacation days. Employers can easily establish their vacation time accrual, usage, and payout policies.

With no standard policy for vacation leaves, the rules and regulations regarding how employees earn vacation days, accrual caps, and what happens to unused vacation days vary significantly from employer to employer.

5. Family leave

Family leave is a PTO in Indiana primarily regulated by federal law, specifically the Family and Medical Leave Act (FMLA). Under FMLA, eligible employees can earn up to 12 weeks of unpaid leave during 12 months for specific family and medical reasons.

While FMLA guarantees job protection during the family leave period, employers are not required to pay employees.

6. Military leave

Indiana labor laws protect an employee who is a member of the Indiana National Guard or Reserve forces and is called to active duty. Employers must reinstate such employees upon their return from military service. While the law provides job protection, it does not specify whether military leave should be paid or unpaid.

7. Jury leave

Indiana state law requires employers to grant employees time off for jury duty without any loss of pay or benefits. No employer can take any adverse actions against an employee serving on a jury.

Jury leave policies are typically straightforward, with employees receiving regular compensation for their jury duty service.

Are There Exceptions to PTO Payout Laws?

As per the Indian PTO payout laws in 2024, employers must provide a payout for accrued, unused PTO (Paid Time Off) upon an employee’s separation. However, there is an exception if the employee’s contract has a clause that clearly states that they will not be paid their PTO upon termination; then, the employer can withhold PTO payout.

For example, if the employment contract states that two weeks’ notice is mandatory for unused PTO to be paid, employees flaunting this requirement can be denied PTO payout upon termination.

Indiana labor laws and vacation pay

Indiana’s labor laws related to vacation pay are essential for any company to operate within the state’s legal framework. Employers should create vacation pay policies on handling accrued vacation pay, mainly when an employee leaves the company, set accrual caps, and implement “use it or lose it” policies based on these laws.

Here are some important considerations to be made.

1. Separation from the company

Indiana’s labor laws require that if a company has an established policy regarding vacation pay at the time of separation, it must adhere to it. Simply put, if your employment contract stipulates that employees are paid for unused vacation time, the company is legally bound to honor this commitment.

However, if there is no mention of unused vacation time payout, employees should be paid unused vacation time. Companies can deny vacation time payout at the time of separation from the company if it is mentioned in the contract.

That’s why businesses need to define and communicate their policies regarding vacation pay clearly.

2. Vacation accrual cap

Indiana law allows employers to set caps on vacation accrual. Therefore, as an employer, you can establish a limit on the amount of vacation time an employee can accumulate. However, policies, contracts, and employee handbooks must mention the vacation accrual cap. Failure to say such a limit on accrual can result in uncapped payments.

3. Use It or Lose It

Indiana legally allows employees to have “Use it or lose it” policies. Such vacation time policies require employees to use their accrued vacation time within a certain period, often a year, or forfeit it. While legal, employers must ensure these policies are clearly outlined and communicated to employees.

As an employer, you must ensure the policy does not infringe on employees’ accrued rights under the company’s vacation policy.

When does a company have to pay out PTO?

There can be two scenarios when a company is obligated to pay out PTO:

  • PTO is mandated by law
  • Through a PTO payout program

The first one is rather easy to understand: Indiana has certain PTO mandated by law, such as family and military leave. Also, it mandates employees should be paid unused PTO at the time of their termination from the company. But allows an exception if it is mentioned in the employment contract that the unused PTO will not be paid.

Another reason a company must pay out PTO is when it offers PTO conversion programs. Such programs aim to allow employees to use their unused vacation time or sick leave in other modes than payout. Employees can contribute the pay out to their retirement savings, get cash cover for emergencies, or pay down student loans.

How does PTO payout work?

Paid Time Off (PTO) payout works compensate employees for the accrued, unused PTO days, and it is usually the same rate as their regular pay. However, the payout calculations can vary based on different methods and factors set by the employer.

PTO payout is different for salaried and hourly employees. We will explore both methods:

Salaried employees:

Let’s consider a salaried employee making $100,000 per year with 100 hours of unused vacation time.

The calculation will be like this:

($100,000 per year) / (2,080 working hours per year) = $48.07 equivalent hourly rate

($48.07 hourly rate) x (100 hours unused PTO) = $4807 value of unused PTO

($4807 PTO value) x (.22 for taxes) = $1057.54 deducted for taxes

$4807 PTO value – $1057.54 taxes = $3749.46 final PTO payout

Hourly employees:

Suppose an hourly employee is paid $20 per hour and has 80 hours of unused vacation time:

The calculation will be:

($20 per hour) x (80 hours unused PTO) = $1,600 value of unused PTO

($1,600 PTO value) x (.22 for taxes) = $352 deducted for taxes

$1600 PTO value – $352 taxes = $1,248 final PTO payout

Do Companies Have to Pay Out Sick Time?

Indiana is one of the states in the US that does not mandate paid sick leave. With no state law mandating sick time payout, the regulations regarding sick leave pay out depend on individual employers. If sick leave is mentioned as a PTO in employment contracts, collective bargaining agreements, and union contracts, then a company has to pay out sick time.

In Indiana, companies may include a provision in their internal policies to disallow sick time payout at the time of termination. Employers must provide specific terms and conditions for sick time accrual and payout within their organization in their policies.

Do states mandate how you calculate accruals?

States typically do not mandate specific methods for calculating Paid Time Off (PTO) accruals. Whether you provide vacation, sick leave, or personal days, you must establish policies and methods for calculating PTO accruals based on your specific business needs, industry standards, and workforce preferences.

While states do not interfere with methods for calculating accruals, they may set minimum requirements regarding the rate at which PTO is accrued. Some states also have policies around carryover, caps, payout on separation, etc.

Employers should be aware of their state’s specific PTO laws and regulations and any local ordinances that may apply to ensure compliance with all legal requirements.

What is the Accrual vacation system of employers in Indiana PTO law?

Indiana does not have specific state laws that mandate the accrual of PTO. Indian PTO payout laws only make it mandatory that if an employer promises PTO in the contract at the time of employment, they should honor the commitment.

This means that employers in Indiana have the flexibility to establish their methods and rates of accrual based on their company policies and the terms outlined in employment contracts or handbooks.

A company can offer how employees accrue vacation time, such as biweekly, semimonthly, or monthly. Employers can also cap the number of PTO hours an employee can earn within a year.

What happens to Roll Over (Carry Over, Brought Forward) Leaves?

Indiana allows the Use It or Lose It policy legally. Hence, employers are not required to allow carryover leaves. The rolled-over or carryover vacation days in Indiana generally depend on the policies established by the employer.

However, employers must provide clear guidelines on their take on the rollover leave and how they are addressed. Also, employees must be offered enough vacation time and should be made aware of the policies.

Payment of accrued, unused vacation on termination

In Indiana, the company’s policies or employment contracts govern how employers pay out accrued, unused vacation days to employees upon separation from the company.

As stated, there is generally no legal requirement. Employees need to review their specific company policies and employment contracts to understand how unused vacation days are treated within their organization.

Indiana State Holidays for 2024

Date Holiday
January 1 New Year’s Day
3rd Monday in January Martin Luther King Birthday, Jr. Day
2 days before Easter Good Friday
1st Tuesday after the 1st Monday in May Primary Election Day
Last Monday in May Memorial Day
July 4 Independence Day
1st Monday in September Labor Day
2nd Monday in October Columbus Day
November 11 Veterans Day
4th Thursday in November Thanksgiving
Day after Thanksgiving Lincoln’s Birthday
December 24 Washington’s Birthday
December 25 Christmas Day

How can Truein help with Paid time-off management?

Truein is a cloud-based time and attendance management solution that can be valuable for managing paid time off (PTO) in the workplace.

Its AI-powered algorithms accurately track employees’ attendance when they clock in and out using their face, which helps to calculate worked hours and monitor PTO accrual. It offers calculation of accrual of PTO based on company policies and predefined rules, significantly reducing the risks of manual errors.

Truein also has a robust time-off management system that streamlines the leave request and approval process. Managers and employees have real-time visibility into PTO balances, allowing them to monitor their accrued and used leave.

Furthermore, it integrates with payroll software, simplifying the process of calculating PTO payouts for employees who are eligible to receive them upon separation from the company.

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Indiana PTO payout laws help employers and employees create a sustainable work environment. While Indiana does not have specific state laws governing all aspects of PTO, employers must ensure that transparent and fair policies are in place to control PTO.

Employees should familiarize themselves with their company’s policies to ensure they know their rights and entitlements regarding PTO.


1. Can an employer take away earned vacation time?

While Indiana allows a Use It or Lose It policy for unpaid PTO, employers can only take away earned vacation time if mentioned in employee contracts and handbooks.

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