SO HOW CAN YOU PROTECT YOURSELF AND YOUR BUSINESS?
As discussed last week, 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 discuss how to best protect yourself and your business when filing these reports.
Prior to 2014, general contractors were already required to keep detailed records on their payments to independent contractors. This record keeping should continue, and additional diligence should be made to ensure the accuracy of these records and compliance with the Act. In addition, while there is no need while the Act does not require you include information about corporations who acted as subcontractors or independent contractors, detailed records should be kept on those transactions as well in the event of an audit by the Department of Labor. Ultimately, it is important to make a good faith effort to comply with the Act, as personal liability is only extended to officers and agents when violations of the Act are “knowing”. Therefore, if detailed records are kept documenting every transaction, it is easier to defend any inaccuracies and show that you were attempting to abide by the law.
No changes were made to the Act affecting the classification process itself. However, properly classifying subcontractors can still be difficult. For example, the Act states that a sole proprietor or partnership performing services for a contractor as a subcontractor will be deemed legitimate if it is shown that the sole proprietor or partnership obtains and pays for any license or permit that is required for the sole proprietor or partnership to complete their work, and that permit is in the sole proprietor or partnership’s name. This statement may make seem that any time a general contractor obtains a permit on behalf of a subcontractor, that subcontractor will not be considered legitimate. Fortunately, that is not the case. The permit issue only goes to determining if the sub is a sole proprietor or a partnership. Failing that analysis only results in the subcontractor being deemed an individual, it does not automatically cause the subcontractor to be classified as an employee. Instead the subcontractor is then deemed to be an “individual” and you need to review the individual criteria under the Act to make the classification. Fortunately the “individual” analysis uses broader criteria to determine if an individual is an employee or independent contractor. So even when a general obtains a permit for a subcontractor, that subcontractor can still be properly classified as an independent contractor assuming the other elements of the analysis are met.
It is important that your report be as accurate and detailed as possible, so it is advisable to have your attorney or corporate counsel review your records prior to preparing your report. An attorney will be able to advise you on whether there are any issues with your classifications, and guide you on what information you are required to report.
Should you have any questions about Illinois Classification Act or any other law that may affect your business, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800.
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