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What Every Contractor Needs To Know About The Illinois Employee Classification Act To Avoid Having The State Impose Severe Penalties

The Illinois Employee Classification Act, 820 ILCS 185/1, applies to all contractors who pays any person to perform any construction work in the State of Illinois.

1) In order to avoid liability, the Contractor needs to prove that the independent contractor (party performing work) is i) free from the contractor’s control and direction in performing the work; ii) outside the usual scope of work that the contractor performs;  and iii) the independent contractor regularly performs the construction work as part of its own business or trade.

2) An oral or written contract between the Contractor and the independent contractor, which identifies the person as an independent contractor, will not prevent liability from being imposed upon the Contractor.  The contract will be just one factor the State may consider when determing whether the person is an independent contractor or employee.  However, the actual actions between the parties and of the independent contractor will control over the terms of the contract.

3) The Act requires the Contractor to report to the Dept. of Labor any payments made to any individual, sole proprieteror or partnership (independent contractor) by April 30th of the followng year.  Failure to report is considered to be a violation of the Act.

4) An example of a Contractor violating this Act: A painting contractor hires independent contractors to perform painting work.  To be in compliance, the painting contractor needs to pay the painters as employees.

5) While the Illinois Dept. of Labor is the State agency that enforces this Act, any person with a reasonable belief that the Contractior is violating this Act can file a claim against the Contractor for violating the Act.  This includes a competitor of the Contractor.  The penalties include a $1,000 per day violation for each person that should have been identified as an employee and barring the Contractor from contracting with the State to perform work.

6) In order to prevent any liability, the Act provides a list of twelve factors that the Contractor and independent contractor should perform and the Dept. of Labor will consider when determining whether the Contract is paying a person as an  independent contractor or employee.   In general,  the indpendent contractor should file its own taxes as an independent contractor, obtain its own insurance, advertise to the public, have its own tools, its profits/losses must be based upon its own actions; have the right to continue working if the Contractor terminates the contract, and performs work that the Contractor typically does not perform.

For more information and to implement procedures to be in complaince with the Act and prevent the Dept. of Labor from imposing fines, contact Corey B. Stern at [email protected] or at 630-824-4808.