Indiana Severance Pay Laws (2026): Is Severance Required?

Indiana law does not require employers to pay severance, and Indiana has no state law requiring notice of plant closings or mass layoffs. The Indiana statutes that name severance are unemployment rules: IC 22-4-5-1 and 22-4-5-2 treat dismissal or severance pay as deductible income that reduces your benefits.

So in Indiana, severance is whatever your employer agreed to provide. For how other states compare and the full federal rules, see our severance pay laws by state guide.

Information last verified on October 7, 2026. This article has not been reviewed by a licensed lawyer.

Jurisdiction scope: This article covers Indiana law on severance pay: the Wage Payment Statute (IC 22-2-5), the Wage Claims Statute (IC 22-2-9) and the unemployment deductible-income rules (IC 22-4-5 and 22-4-15-8), with short notes on the federal rules that apply in Indiana. It does not cover when your last regular paycheck is due; see Indiana final paycheck laws. It does not cover benefit amounts or filing for unemployment; see Indiana unemployment benefits.

Is severance pay required in Indiana?

No. We searched the full text of Indiana Code Title 22 (Labor and Safety), as published in the 2026 Indiana Code, for "severance," "dismissal pay," "separation agreement," "plant clos," "mass layoff," "layoff" and "nondisclosure." Every hit was an unemployment provision or otherwise unrelated to an employer duty to pay severance. We also read the wage payment chapters (IC 22-2-5 and 22-2-9); neither mentions severance.

That finding is strong for Title 22. We did not text-search titles outside labor law, so treat it as moderate for the Code as a whole. Federal law does not require severance either; the U.S. Department of Labor calls it "a matter of agreement between an employer and an employee."

No Indiana WARN Act

Indiana has no mini-WARN law. Title 22 contains no plant-closing provision, and its "mass layoff" references concern how the state takes unemployment claims (IC 22-4-17-1), not a notice duty for employers.

The federal WARN Act still applies. It requires 60 days' written notice before a plant closing or mass layoff (29 U.S.C. 2101-2102), and an employer that skips it can owe each affected worker back pay and benefits for up to 60 days (29 U.S.C. 2104(a)). It covers employers with 100 or more employees not counting part-time employees, or 100 or more employees, counting part-time employees, who together work at least 4,000 hours a week, not counting overtime (29 U.S.C. 2101(a)(1)). Our severance pay laws guide explains the federal triggers.

Promised severance and Indiana's wage laws

Whether an unpaid severance promise can be pursued under Indiana's wage statutes is an open question. The Wage Claims Statute defines wages broadly:

The term "wages" means all amounts at which the labor or service rendered is recompensed, whether the amount is fixed or ascertained on a time, task, piece, or commission basis, or in any other method of calculating such amount.

That is IC 22-2-9-1(b). It does not mention severance, and we found no Indiana court decision or agency statement on whether promised severance is wages under either wage statute. If your severance comes from a formal company plan, federal ERISA law may govern it, since ERISA supersedes state laws that relate to covered benefit plans (29 U.S.C. 1144(a)).

If severance does count as wages, the chapter that governs wages owed when an employer separates an employee is the Wage Claims Statute (IC 22-2-9-2). The commissioner of labor enforces it and may refer wage claims to the attorney general, and the remedies in IC 22-2-5-2 (the unpaid wages, a reasonable attorney's fee and court costs, and, if the employer was not acting in good faith, liquidated damages of two times the wages due) apply to civil actions brought that way (IC 22-2-9-4(b)).

Indiana gives two years to sue over wages or a discharge (IC 34-11-2-1). That two-year limit does not apply to an action based on a written contract, so a different period may govern a claim on a written severance agreement; acting within two years is the safe course.

When severance must be paid

When an employer separates an employee, "the unpaid wages or compensation of such employee shall become due and payable at regular pay day for pay period in which separation occurred" (IC 22-2-9-2(a)). Nothing in Title 22 sets a payment date for promised severance, so the agreement's own terms are the place to look. For your last regular paycheck, see Indiana final paycheck laws.

Filing a wage claim with the Department of Labor

The Indiana Department of Labor's Wage and Hour division takes wage claims through an online form. The form screens for:

• work performed within the last two years ("The Indiana Department of Labor cannot accept claims over two years old"),
• a total claim between $30 and $6,000,
• work performed in Indiana or for an Indiana employer, and
• no lawsuit already filed.

The statute lets the commissioner take assignments of wage claims of less than $6,000 (IC 22-2-9-5). The form lists the five types of claim the Department may accept (final paycheck, minimum wage, overtime, vacation pay and improper deductions) and says it cannot accept claims for "supplementary compensation" such as bonuses. Severance is not on the list, so ask the Department before relying on that route, and expect that small claims court or a lawyer may be needed for an unpaid severance promise.

Severance and Indiana unemployment benefits

Severance reduces Indiana unemployment benefits. IC 22-4-5-1(a)(2) lists as deductible income:

Dismissal pay or severance pay, including: (A) money that an employer pays to a dismissed employee to compensate the employee for income lost due to unemployment; and (B) remuneration paid to a dismissed employee under a separation agreement.

IC 22-4-5-2(a) then sets the timing. Severance is "allocated to the period of time for which such payment is made immediately following the date of separation," and you are not considered unemployed in a week when the allocated amount equals or exceeds your weekly benefit amount. Separately, the statute excludes $100 of remuneration paid or payable for any week from deductible income (IC 22-4-5-1(b)).

Signing a release does not take a payment out of this rule. Under IC 22-4-15-8, "a payment of private unemployment benefits that is conditional upon the signing of a release of employment related claims against the claimant's employer is severance pay and is deductible income."

The Department of Workforce Development's claimant handbook says: "Severance/dismissal pay for all individuals will be deducted from unemployment insurance benefits." It also tells people receiving severance to apply for benefits immediately after becoming unemployed. For benefit amounts and filing, see Indiana unemployment benefits.

The 2026 change: vacation and sick pay

Senate Enrolled Act 162, signed March 5, 2026 as Public Law 113-2026, amended IC 22-4-5-1 and 22-4-5-2 effective July 1, 2026. It removed vacation pay and sick pay from deductible income. Severance and dismissal pay remain deductible.

The handbook currently posted is the July 2025 version, written before this change, and its glossary still lists vacation and sick pay. Do not rely on it for how vacation pay is treated after July 1, 2026.

What an Indiana severance agreement can and cannot require

Apart from the unemployment rule below, we found no Indiana statute in Title 22 that restricts release, confidentiality or non-disparagement terms in a separation agreement, or that sets a review period. Titles outside Title 22 were not searched.

Waiving Indiana wage claims

The Wage Claims Statute protects the balance of a wage claim: "the acceptance by the employee of any payment made under this chapter shall not constitute a release as to any balance of his claim" (IC 22-2-9-3). We found no Indiana statute or case on whether a private severance release waives wage-statute claims.

Unemployment rights cannot be signed away

A release in a severance agreement cannot take away your right to unemployment benefits. Apart from an exception for child support withholding, IC 22-4-33-1 provides that "any agreement by an individual to waive, release or commute the individual's rights to benefits or any other rights under this article is void," and no employer may "require or accept any waiver by any individual in the employer's employ of any right under this article."

Non-compete terms in a severance agreement

Indiana bars a primary care physician and an employer from entering a non-compete on or after July 1, 2023 (IC 25-22.5-5.5-2.5), and bars a physician and a hospital, hospital parent company, affiliated manager or hospital system from entering one on or after July 1, 2025, making such an agreement void (IC 25-22.5-5.5-2.3). For any other physician, a non-compete originally entered into on or after July 1, 2020 must meet IC 25-22.5-5.5-2, and since July 1, 2023 it is not enforceable if the employer ends the physician's employment without cause (25-22.5-5.5-2(b)(1)). For workers who are not physicians, we found no Indiana statute on non-competes; enforceability depends on Indiana case law, which this page does not cover.

Federal limits that also apply

If you are 40 or older, a release of federal age-discrimination claims must give you at least 21 days to consider it (45 days in a group layoff) and 7 days to revoke it after signing (29 U.S.C. 626(f)). Our severance pay laws guide covers the other federal limits on releases.

Reading an Indiana severance offer

Because Indiana law gives no right to severance, the written agreement is what you can rely on, so keep it and any policy that describes it. Check how and when it pays, because Indiana allocates severance to the weeks right after separation when it decides unemployment eligibility. Our severance pay laws guide has general guidance on reading and negotiating an offer.

Recent Indiana changes and pending bills

We did not scan the 2025 and 2026 bill indexes for severance, layoff-notice or separation-agreement bills, or check 2027 prefiled bills, so check the General Assembly's website before relying on this.

Related

• Severance pay laws by state
• Indiana unemployment benefits
• Indiana final paycheck laws
• Indiana at-will employment laws

Disclaimer: This article provides general legal information about Indiana severance pay law (IC 22-2-5, IC 22-2-9 and IC 22-4-5) and the federal laws that apply in Indiana. It is not legal advice. The information was verified on October 7, 2026. For advice about your situation, contact the Indiana Department of Labor, the Department of Workforce Development, a legal aid office or a lawyer licensed in Indiana.

Last updated: October 7, 2026.

Frequently Asked Questions

Is severance pay required by law in Indiana?

No. A full-text search of Indiana Code Title 22 found no statute requiring severance. The only Title 22 provisions naming severance are unemployment rules (IC 22-4-5-1, 22-4-5-2, 22-4-15-8).

Does Indiana have a WARN Act?

No. Title 22 has no plant-closing or mass-layoff notice duty. Federal WARN requires 60 days of notice from employers with, generally, 100 or more full-time employees (29 U.S.C. 2101-2102).

Can I collect unemployment while receiving severance in Indiana?

Severance is deductible income under IC 22-4-5-1(a)(2) and is allocated to the period right after separation; you are not considered unemployed in a week when the allocated amount equals or exceeds your weekly benefit amount (IC 22-4-5-2(a)).

Does vacation pay reduce Indiana unemployment benefits?

Not since July 1, 2026. Senate Enrolled Act 162 (P.L. 113-2026) removed vacation pay and sick pay from deductible income; severance and dismissal pay are still deductible.

Is promised severance considered wages in Indiana?

It is unsettled. IC 22-2-9-1(b) defines wages broadly as amounts paid for labor or service, but we found no Indiana court decision or agency statement on severance.

Can the Indiana Department of Labor help me collect unpaid severance?

Probably not through its standard claim process. Its online wage claim form lists only final-paycheck, minimum-wage, overtime, vacation-pay and improper-deduction claims and turns away claims for supplementary compensation such as bonuses; severance is not listed, so ask the Department, but be prepared to use small claims court or a lawyer.

How long do I have to sign a severance agreement in Indiana?

We found no Indiana review or revocation period. If you are 40 or older, the federal OWBPA gives you at least 21 days to consider a release of age claims, 45 in a group layoff, and 7 days to revoke it (29 U.S.C. 626(f)).