Employer Misclassification of Workers
Law abiding employers face a competitive disadvantage when competing for business or bidding for jobs against employers who misclassify. Misclassifying employers have artificially low costs because they have not covered the cost of unemployment insurance contributions and workers' compensation for their employees. Law abiding businesses that properly classify their employees are subsidizing businesses that misclassify and could end up paying higher unemployment insurance contributions, higher workers' compensation premiums, and higher taxes than would be required if all employers followed Illinois law.
Employers who fail to pay required workers' compensation insurance premiums, unemployment insurance premiums, and income tax withholdings on behalf of their workers are subject to investigation and penalty from the Illinois Workers' Compensation Commission, the Illinois Department of Employment Security, and the Illinois Department of Revenue.
In addition, regarding employees in the construction industry who are wrongfully classified as independent contractors, the Illinois Department of Labor is authorized to investigate and issue additional penalties against employers who are found to have engaged in misclassification.
How Misclassification Occurs
Misclassification occurs if any employer treats workers as "independent contractors" when they are employees.
Some employers use this tactic to avoid compliance with:
Employee or Contractor? It's as easy as A, B, C.
Service performed by an individual for an employing unit, whether or not such individual employs others in connection with the performance of such services, shall be deemed to be employment unless and until it is proven in any proceeding where such issue is involved that:
- Such individual has been and will continue to be free from control or direction over the performance of such services, both under his contract of service and in fact; and
- Such service is either outside the usual course of the business for which such service is performed or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and
- Such an individual is engaged in an independently established trade, occupation, profession, or business.
Consequences of Misclassifying Employees as "Independent Contractors" may include:
- Interest on delinquent unemployment insurance trust contributions at an annual rate of 24 percent
- Financial penalties for failing to report wages paid to employees
- Financial penalties for willfully failing to make contributions to the unemployment insurance trust.
- Employers in the construction industry who are found to be in violation of the Employee Classification Act may be subject to fines of up to $1,000 per violation found in the first audit and up to $2,000 per repeat violation within a five-year period.
Additionally, officers and employees who willfully cause a business to fail to make payments into the system can now be held personally liable for the payments due from the business.
An employer that knowingly and willfully fails to obtain insurance may be fined up to $500 for every day of noncompliance, with a minimum fine of $10,000. Corporate officers can be held personally liable if the company fails to pay the penalty. In addition, corporate officers who are found to have negligently failed to obtain insurance are guilty of a Class A misdemeanor; if they are found to have knowingly failed to obtain insurance, they are guilty of a Class 4 felony. An employee who is injured during the time the employer was uninsured may sue the employer in civil court, where damages are unlimited.
Agencies enforcing Employee Classification
The Illinois Department of Labor works jointly with the following agencies to enforce the Act:
Filing an Employee Classification Complaint
Complaints may be filed, electronically or on paper, on behalf of yourself or a worker you believe has been misclassified. Complaints filed with the Illinois Department of Labor will be shared with the Illinois Department of Employment Security, the Illinois Department of Revenue, and the Illinois Workers’ Compensation Commission so those agencies can conduct investigations for violations of their requirements for employers.
Accessing the ECA Complaint Portal
Creating an Illinois Public ID Account
- To create an Illinois Public ID Account click here. Do not close out of this page, after your account is created you will need to return here to log in to the online portal.
- Click "Create a New Account" and complete the registration form.
- Please note if you did not receive an email, follow the help instructions located here.
- Once your account is created, continue with the instructions below.
Employee Classification Act (ECA) Complaint Portal
- After your Illinois Public ID Account is created you can access the ECA Portal
- After clicking the link above, select "Public Account" and login using the username/password you just created.
- Further instructions will be provided throughout the ECA portal to assist you with the process.
File a Complaint via Paper Form
Individuals performing services for a construction contractor are presumed to be employees of the contractor unless they meet the criteria specified in section 10 of the Employee Classification Act.
- Email: DOL.ECA@Illinois.gov
- Employee Classification information: (217) 782-1710.