How to Do Payroll in Indiana
As an Indiana employer, it is critical that you consider the various legal requirements when performing payroll. The Indiana Department of Labor administrates the state wage and hour laws; the Indiana Department of Revenue administrates the payroll tax laws. The department of labor requires that you pay employees accurately and on time. The department of revenue requires you to withhold taxes from employee paychecks plus pay your own share. Furthermore, federal wage and payroll tax laws apply.
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Instructions
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Pay employees at least the federal minimum wage of $7.25 per hour. The majority of Indiana employers are required to adhere to the Fair Labor Standards Act's federal minimum wage guidelines.
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Pay overtime at 1 1/2 times the employee's regular pay rate for hours worked over 40 in the workweek. Indiana adheres to the FLSA overtime standards and state overtime laws. Under the FLSA, highly compensated employees, administrative, executive, professional and some computer workers are exempt from overtime pay if they meet the FLSA job and wage duties test. Under Indiana law, exemptions include those who perform commission-paid jobs, are employed by a parent, spouse or child; and those who volunteer to do work for charitable and religious organizations. Contact the Indiana Department of Labor if unsure of how to apply overtime policies.
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Withhold state and county income tax from employee wages. Use the employee's state Withholding Exemption and County Status Certificate to determine her county status, and personal and dependent exemptions. Consult the Indiana withholding tax tables to figure state and county income tax withholding. Check the exemption certificate to see if the employee wants additional tax withheld for state and county income tax. If so, add the respective extra amounts to the withholding amount you obtained from the tax tables.
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Withhold federal income tax from employee wages. Use the employee's W-4 form to determine his filing status and allowance, and IRS Circular E to figure the withholding amount. The Circular E's withholding tax tables give the withholding amount based on the employee's filing status, allowances, pay period and taxable wages. If the employee indicates additional withholding on his W-4 form, add it to the withholding amount you obtained from the Circular E.
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Calculate Social Security tax and Medicare tax at 6.2 percent of gross taxable earnings, up to the annual wage limit of $106,800; and 1.45 percent of all gross taxable wages, respectively. Both you and the employee pay equal portions of these taxes.
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Calculate federal unemployment tax at 6.2 percent of the first $7,000 paid to each employee -- only the employer pays this tax. You can take a credit of 5.4 percent against your FUTA tax if you paid your state unemployment tax on time. This reduces your FUTA tax rate to 0.8 percent.
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Figure state unemployment tax according to the state wage base and tax rate -- only the employer pays this tax. The state sends you your SUTA tax rate for each year.
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Tips & Warnings
Pay federal income tax, Social Security tax, Medicare tax and FUTA tax liabilities to the IRS.
Pay state payroll taxes according to the Indiana Department of Revenue's guidelines.
References
- Indiana Department of Labor: Wage and Hour FAQs
- U.S. Department of Labor: Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (FLSA)
- Indiana Department of Revenue: How to Compute Withholding for State and County Income Tax
- State W4: Employee's Withholding Exemption and County Status Certificate
- StaffMarket: Understanding PEO Pricing: SUTA -- State Unemployment Taxes
- Indiana Department of Labor Information Maintained by the Office of Code Revision Indiana Legislative Services Agency
Resources
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