You’re writing your unemployment insurance checks, paying workers’ compensation premiums and remitting payroll taxes to the government when a bright idea occurs to you: If only your employees were independent contractors, you wouldn’t have all these expenses.
The Illinois General Assembly understood the appeal of that daydream—and took action to slap you back to reality.
The Illinois Employee Classification Act took effect Jan. 1, 2008. The law gives the Illinois Department of Labor (IDOL) expanded authority to crack down on employers that misclassify employees as independent contractors.
In particular, IDOL investigators are looking at the construction industry, where they believe the practice is widespread. Businesses even remotely related to construction (e.g., truckers, suppliers, consultants) will face greater scrutiny. But the increased attention won’t necessarily stop with construction companies. The IDOL may apply the same tests to organizations in other industries that use independent contractors. The onus is now on contractors to prove their independent status under the state’s “ABC” test (see box below).
An enforcement steamroller
Employers that violate the act can face IDOL administrative proceedings (or lawsuits from affected employees).
If the department investigates, it has the right to examine all of an employer’s records and require testimony regarding its relationship to the “independent contractor.” If investigators find that an employer has misclassified an employee as an independent contractor, the IDOL can impose a fine of up to $1,500 for each violation—and larger amounts for repeat violations. Repeat violators can be disbarred from receiving state contracts. Construction companies found to be willful violators may face misdemeanor and felony charges.
That’s just the beginning. Even more proceedings will surely follow when the IDOL—as it promises it will—notifies the state Department of Employment Security, the Department of Revenue and the Workers’ Compensation Commission.
The act also permits employees themselves to initiate lawsuits seeking wages, salary and , liquidated damages and compensatory damages up to $500 for each violation. Oh, and attorneys’ fees and costs, too.
On top of all that, your competitors can sue you if they believe misclassifying employees gave you an unfair advantage in contract bidding. If your competitor-turned-whistle-blower proves its case, you will be subject to all the remedies that the department or an individual employee could obtain—plus a 10% penalty.
Bottom line: How to comply
To comply with the act, Illinois employers should work only with independent contractors that really have a business that services more than a single entity and owes its existence to more than one person.
Additionally, employers should keep detailed records to show they did not require an employee “to accept status as an independent contractor and that the employer has a record of reviewing all of the factors of a particular entity before classifying it as an independent contractor.” Detailed records protect employers when the IDOL, a disgruntled employee or jealous competitor questions your practices.
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