If you’re an employer in Illinois, you need to understand how income tax, unemployment tax, and other payroll laws affect your business and employees.
Here’s every payroll law you need to know to pay your employees properly and remain compliant with the state.
Illinois Income Tax
Illinois has a flat income tax rate of 4.95% for individual taxpayers. Employers are required to withhold the state income tax from their employees’ paychecks according to how many allowances they are eligible for in Illinois.
When you hire someone new in Illinois, they need to fill out the federal Form W-4 and Form I-9 in addition to the Illinois Form IL-W-4, which is a state-specific version of the W-4. This form lets you and the state know how many allowances to consider when withholding taxes from an employee’s paycheck.
After having that information, you can use Illinois’ tax rate tables to determine how much to withhold from a paycheck.
Let’s look at an example of an employee you hired on January 1st, 2024. This employee gets paid biweekly, has one allowance claimed on their IL-W-4, and made $700 for the current pay period.
Using the 2024 tax rate table for biweekly pay, you can see that you’ll need to withhold $29.49 from this employee’s paycheck for state taxes.
Illinois requires its employers to file and pay withholding taxes electronically, which you can do via MyTax Illinois. New employers have to pay by the 15th of the month following the month they withheld taxes but can file their withholding taxes quarterly.
Illinois may change your payment and filing schedule to semi-weekly payments with quarterly filings if you exceed $12,000 in withholding taxes in one year.
Illinois Unemployment Insurance Tax
New tax-paying businesses in Illinois pay a 3.95% tax toward the state unemployment fund. This tax is paid by the employer only, meaning that employers don’t withhold the tax from employee paychecks.
However, how much you pay is determined by your employees’ paychecks.
Illinois requires employers to pay their assigned tax rate based on a taxable wage base of $13,950. So, the first $13,950 in taxable wages an employee earns for the year is what you’ll use to calculate your tax responsibility.
To illustrate, an employee making $50,000 in taxable wages this year would require you to pay your tax on the full $13,950, which equals $551 ($13,950 x 3.95%). However, a part-time employee who has taxable earnings of $6,000 would equal $237 ($6,000 x 3.95%) for you.
Illinois assigns you a new tax rate as needed, so your rate may change from year to year. For 2024, the rates range from 0.3% to 8.650%.
Use the MyTax Illinois portal to pay and file this tax, too, which is due every quarter by April 30th, July 31st, October 31st, and January 31st.
Minimum Wage Laws in Illinois
Minimum wage laws in Illinois detail the minimum amount that workers need to be compensated for their work.
Illinois’ minimum wage is $14 per hour in 2024, with a scheduled increase to $15 per hour in 2025.
For 2024, tipped workers must earn at least $8.40 per hour, while minors working less than 650 hours during a calendar year must earn at least $12 per hour. For 2025, those wages increase to $9 and $13, respectively.
The Wage Payment and Collection Act provides guidance for employers and outlines penalties for any employers who don’t follow the state’s minimum wage laws, which can be costly.
Not only are employees required to pay workers any wages they weren’t paid properly, but employers can also be responsible for paying damages of 5% of the underpayment, up to $1,000 in administrative fees, and a penalty of as much as 20% of the underpayment if they still fail to comply in a timely manner.
Overtime Laws in Illinois
When an employee in Illinois works over 40 hours in one workweek, they’re entitled to overtime pay. The employer can define a workweek how they choose, such as Sunday to Saturday or Thursday to Wednesday.
Overtime must be paid at one and a half times the regular rate of pay. So, for an employee earning the Illinois minimum wage of $14 per hour, the overtime rate is $21 per hour ($14 x 1.5).
Employers aren’t required to pay overtime when employees work on weekends or holidays unless working those days puts an employee above 40 hours in a workweek.
Illinois Pay Frequency Laws
Most employees in Illinois must be paid at least two times per month. More specifically, Illinois requires payments at least semi-monthly, and employers need to pay employees no later than 13 days after a pay period ends.
Therefore, if your pay period ends on the 1st of February, your employees need to be paid by the 14th of February at the latest for that pay period.
The only people who can get paid monthly are executives, administrative personnel, and other professionals, which the Fair Labor Standards Act exempts from more frequent pay, provided they meet certain criteria. You can also pay commissions monthly.
Illinois Payroll Laws for Terminated Employees
Employees who quit or are terminated from their jobs in Illinois are not entitled to any severance, holiday pay, or sick pay by law, but employers who promise to pay any of these payments in an employment contract have to uphold the agreement.
Otherwise, employees are only eligible to get whatever payment they’re owed from working by the next scheduled pay date that they normally would have been paid on.
To illustrate, say an employee was terminated on June 1st, and their next pay date would have been on June 7th. You’ll need to provide the employee with their paycheck no later than June 7th. Their final compensation check should include all wages, bonuses, commissions, and other forms of pay due.
Break Requirements in Illinois
Illinois employers must provide a meal break of at least 20 minutes for any employee working 7.5 hours or more in a day, and the break needs to occur within the first five hours of their shift. If the employee works 12 hours or more, they’re eligible for another 20-minute meal break.
These breaks don’t have to be paid by law, but you can make it a company policy to pay them. Also, if an employee works through their meal break, their employer must pay them for that time.
Additionally, employees need to have at least a full 24 hours off in seven consecutive days unless the employee agrees to work on their day off. This is known as the One Day Rest in Seven Act, or ODRISA, which requires employers to request an exemption from the Illinois Department of Labor to allow volunteering employees to work on their rest day.
Take the Guesswork Out of Illinois Payroll
Like any state, Illinois has its own set of payroll laws that you absolutely must follow to pay employees correctly and avoid getting into hot water in terms of taxes and compliance.
Plus, there are also federal taxes and payroll laws to consider.
Instead of trying to keep track of all the due dates, ensure you’re calculating everything right, and stay updated on federal and state payroll changes, do yourself a favor and incorporate payroll software into your daily routine.
Payroll software doesn’t necessarily take the place of an HR department, but you can focus on expanding in that area as your business grows. Payroll software has everything you need when you’re starting out and growing. Your future HR team can also continue to use it to increase their efficiency and automate some tasks.
The best payroll tools have it all. They store your payroll reports, employee forms, and tax forms, oversee employee benefits, stay updated on federal and state tax laws, and file your taxes for you.
If there’s anything your software can’t handle automatically, it’ll send you reminders of when you need to do it, so you’ll never miss an important date.
Running payroll in Illinois doesn’t have to confuse you or take loads of time to do. Find the best payroll software for your business and take more of a hands-off approach toward Illinois payroll.
