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Warning to Illinois Construction Clients: Amendments to the Employee Classification Act!

November 2013

By: Ryan M. Helgeson, Esq.

Illinois has enacted amendments to the Employee Classification Act that will become effective on January 1, 2014. The amendments include new reporting requirements, new procedural amendments, a reduction of fines, and the imposition of individual liability.

New Reporting Requirements:

Public Act 205 creates a new provision of the Act requiring construction companies, for each taxable year, to report the following information with respect to any individual, sole proprietor or partnership to whom the company makes payments for construction services if the recipient of the payment is not classified as an employee: (1) the name, address and business identification number for the construction company; (2) the name, address and federal employer identification number for the recipient of the payment; (3) the total amount paid during the taxable year to the recipient, including payments for any materials and equipment that were provided along with the services. Only the name of the construction company and the name of the recipient of the payments are subject to disclosure under the Freedom of Information Act. Failure to report, or filing an incomplete report, subjects the company to the same fines and debarment consequences provided for other violations of the Act. Businesses primarily engaged in the sale of tangible personal property or contractors doing work for such businesses are not subject to the reporting requirements. Also, the reporting requirements do not apply to individuals or firms meeting the "responsible bidder" requirements of Section 30-22 of the Illinois Procurement Code.

Also, Public Act 106 provides for individual liability to "any officer of a corporation or agent of a corporation who knowingly permits such employer to violate the provisions of the Act." However, individual liability does not apply to an officer or agent of a corporation "which on the project under investigation satisfies the responsible bidder requirements set forth in the Illinois Procurement Code."

Implications for Employers:

While the new reporting requirements create additional administrative burden for construction employers, regulations promulgated under the Act already require employers to keep records of the information that must be filed. Employers must be diligent about filing complete and accurate reports to avoid being subjected to the penalties imposed.

The most significant change created by Public Act 106 is the imposition of individual liability. While the penalty reductions are welcome, the real problem for construction companies arises out of the fact that each day that a misclassified worker performs services amounts to a separate violation. Thus, the exposure for penalties can add up quickly even with the reduced fines. Also, although the procedural enhancements for construction companies provide helpful clarification, the Act does not provide employers with sufficient due process rights in advance of the IDOL's enforcement actions.

If you have questions regarding these new laws and how they may affect your business, Attorney Ryan Helgeson is happy to help you. Please contact Ryan at (630) 377-1554 or at ryhelgeson@wesselssherman.com.