Tuesday, January 15, 2008

Employee Classification Act - Illinois

Effective January 1, 2008 a new Workers Compensation law went into effect in Illinois. The short title of this act is the "Employee Classification Act". This Act is intended to address the practice of misclassifying employees as independent contractors to avoid paying proper taxes. Several highlights (or low lights) of this act include:


  • all subcontractors are presumed to be employees of the general contractor

  • the burden of proof that a subcontractor is truly independent lies on the general contractor

  • the "test" of subcontractors vs. employees have become more strict

  • fines start at $1500 and can double

  • a 1st offense is a misdemeanor; additional offenses can be a felony

  • a general contractor can be turned in by anyone; if a fine results the whisleblower receives 10% of the fine as a reward

  • a legal opinion I have heard recommends hiring only subcontractors that are corporations or LLC's since they are already subject to state regulation.

  • information can be shared between IRS, insurance companies and the Dept of Labor in attempts to catch violators.

What does this all mean? If you hire sub's you need to make sure that you conform to the new law. If you are a sub you may want to incorporate or form a LLC to protect yourself.


More information can be obtained by contacting me: Jeff Luken, CPCU


jeffluken@lukeninsurance.com


ph. 618-462-9211


Here is a link to the new law: http://www.ilga.gov/legislation/publicacts/fulltext.asp?Name=095-0026


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