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What kinds of employers does the Illinois Employee Classification Act cover?

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in Compensation and Benefits,Employee Benefits Program,Employment Law,Hiring,HR Management,Human Resources,Small Business Tax,Small Business Tax Deduction Strategies

Q. What is the Illinois Employee Classification Act? I’m not sure if it applies to my company.

A. The Illinois Employee Classification Act applies exclusively to the construction industry. Its purpose is to address the widespread construction-industry practice of misclassifying workers as “independent contractors” in order to avoid tax and labor law obligations, such as payroll taxes, unemployment insurance taxes, workers’ compensation premiums, and minimum wage and overtime payments.

The law applies broadly to all individuals performing construction services for a contractor in Illinois on or after Jan. 1, 2008.

What if we break the law?

Q. What are the penalties for violating the Illinois Employee Classification Act?

A. Each violation, for each person and for each day, constitutes a separate and distinct violation. The act imposes civil penalties, including $1,500 for each violation found in the first audit by the Department of Labor. Penalties go up to $2,500 for each repeat violation the department finds within a five-year period.

Repeat violations will also bar a contractor from receiving state contracts for four years.

A contractor that willfully violates the act is subject to penalties up to double the statutory amount, as well as punitive damages and certain criminal penalties.

Any individual “aggrieved” by a violation of the act may also file a private lawsuit within three years from the final date of performing services for the contractor. That kind of lawsuit will not exhaust administrative remedies being sought through the Department of Labor. Such an individual may collect wages, salary, employment benefits and other compensation due, as well as liquidated damages, compensatory damages and up to $500 for each violation.

If unlawful retaliation occurs, the individual may also collect attorneys’ fees and costs.

Who must comply with the law?

Q. Does the Illinois Employee Classification Act apply to all types of construction work?

Yes, the new law applies to all construction work performed within the state of Illinois, including alterations, improvements, renovations, repairs, maintenance and additions to any building, structure, highway, road, bridge, parking facility or real property.

It specifically includes: (1) public and private construction; (2) residential and commercial building; (3) road, bridge, sewer, railroad, excavation and water works; (4) maintenance, renovation and repair work; (5) landscaping, painting and decorating work; and (6) moving construction-related materials to or from a job site.

Under the law, who is an employee and who is an independent contractor?

Q. How do I determine whether someone is an employee or an independent contractor?

A. A person performing construction services for a contractor is presumed to be an employee unless: (1) the individual’s performance is free from control or direction by the contractor; (2) the service performed is outside of the usual course of services performed by the contractor; and (3) the individual is engaged in an independently established trade, occupation, profession or business.

Construction contractors should work closely with an attorney to create a written classification policy that complies with the language of the act. Review all current classifications and assess whether they are compliant. Be sure to apply your classification policy fairly and uniformly in a nondiscriminatory manner. Train supervisors, hiring managers and HR staff to adequately classify individuals under the act.

The resources spent establishing and implementing an adequate written classification policy will help prevent costly sanctions and litigation in the future.

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