Preparing Your Annual Report
On January 1, 2014, two amendments to the Illinois Classification Act went into effect. These amendments require additional reporting from construction contractors and create individual liability when the Act is violated. The first such yearly report is due by January 31, 2015. With this deadline quickly approaching, let’s refresh your understanding of the increased reporting requirements and how failure to follow those requirements could affect your business.
The Illinois Employee Classification Act
Effective January 1, 2008, Illinois enacted the Employee Classification Act. Primarily aimed at the construction industry, the Act focuses on the classification of employees vs. independent contractors and imposes substantial fines for misclassification. The Act creates a presumption that any person performing services for an applicable construction company is an employee of that company unless it is shown that the individual is an independent contractor under one of two alternative tests. Neither of these tests creates a clear distinction between an employee or an independent contractor.
New Requirements
Contractors are required to file their first yearly report with the Illinois Department of Labor regarding the use of independent contractors by January 31, 2015. No form or sample report has been provided by the Department of Labor, so every contractor required to file a report will have to prepare their own. Each report must contain the name, address and business identification number for the construction company filing the report; name, address, and federal employer identification number for each 1099 individual, sole proprietor or partnership the contractor paid during the previous year; and the amount paid to each such 1099. The amount paid should include not just payments for services, but also payments made for materials and equipment.
The Act provides for penalties for willful violations. While one amendment did reduce the fines by $500 for each occurrence, the fines are still $1000.00 per occurrence for the first offense, and $2,000.00 per occurrence for any additional violation within a 5 year period. Plus every day a violation occurs is considered a separate violation, so the fines can quickly add up to a substantial sum. In addition to monetary fines, any officer or agent who willfully fails to follow the Act can be charged with a Class C misdemeanor for their first offense. Any subsequent violation within 5 years of the original violation is considered a Class 4 felony, the fines are doubled, and the contractor will be barred from the right to bid on, and perform, state contracts.
The alternate tests provided under the Act are confusing and, as a result, provide little guidance to contractors on how to determination whether to classify a subcontractor as a 1099 or W2. While this ambiguity was concerning before, it becomes even more worrisome with the new amendment. Under the new amendment, the Act now provides that any officer or agent of the contractor who knowingly fails to properly report and classify independent contractors and employees can be held personally liable for all violations and penalties that are assessed under the Act.
Should you have any questions about employee classification laws, or any other law that may affect your business, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800. Be sure to read next week’s article on how you can best protect yourself and your business when classifying employees.
Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law.
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