2014 Changes to the Illinois Employee Classification Act
The Illinois Employee Classification Act (ECA) went into effect on January 1st, 2008. As noted in my earlier post, the ECA was enacted to punish construction companies (including construction-related trucking companies) who improperly classify employees as “independent contractors” in order to avoid payroll taxes, unemployment insurance contributions, employee benefits and other related costs of having employees.
Essentially, the ECA creates a legal presumption that an individual performing services for a contractor is an employee of that contractor, unless the contractor can prove otherwise.
The Illinois Department of Labor (IDOL) enforces the ECA, conducting audits, investigations and issuing penalties. Penalties for violations can be steep. Each day that an individual is misclassified is counted as a separate violation. Fines start at $1,000 for first violations, but increase for subsequent violations and also increase for willful violations.
New Reporting Requirements
Effective January 1st, 2014, businesses in the construction industry that use independent contractors must now comply with new IDOL reporting requirements. The report must be filed with IDOL on or before January 31, 2015.
The contractor must report the following information for each independent contractor for the 2014 tax year:
- The individual, sole proprietor, or partnership name, address and federal employer identification number; and
- The total amount paid by the contractor to the individual, sole proprietor, or partnership performing services in the taxable year, including payments for services and for any materials and equipment that was provided along with the services.
IDOL has provided a web-based reporting form for this new requirement.
These reports will be due annually going forward. A contractor who fails to submit a report to IDOL or submits a false report is subject to civil penalties, as this would be a violation of the ECA.
Reminder for ALL employers – even those outside of the construction industry
All employers should note that Illinois unemployment compensation laws address employee classification through an “ABC Test” that differs slightly from the ECA, as outlined here by the Illinois Department of Employment Security.
For more information
Business owners with questions regarding employee classification, subcontractors or independent contractors should consider consulting with their attorney and/or accountant.
Illinois businesses in the construction industry need to become familiar with the ECA and the new reporting requirements.