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Assessing the Impact of the Illinois Minimum Wage Change on Your Company

May 21, 2019  |   Compensation,Uncategorized   |     |   Comments Off on Assessing the Impact of the Illinois Minimum Wage Change on Your Company

Effective Dates of the Changes

The following table shows the effective dates of the changes to the Illinois minimum wage regulations:

CompensationBCR_May Blog_05.20.19

Under terms of the bill, the wage would rise $1.00 to $9.25 per hour on January 1, 2020, and another 75¢ on July 1, 2020. Every January 1st thereafter the wage would rise another $1.00 per hour until it hits $15.00 on January 1, 2025.

Teenagers hired for the summer season would make less – their minimum wage would top out at $13.00 per hour – but there is no variation by geographic region. The minimum wage in Chicago is set to rise $1.00 to $13.00 on July 1st, and still would run higher than the statewide figure for the next few years.

To mitigate the sting for small employers, the law allows employers with 50 or fewer employees to claim a tax credit for 25% of the cost of the increase in 2020. The credit gradually phases out over the next several years.

Penalties Are Consequential

The law also dramatically increases employers’ potential liability for minimum wage and overtime violations. Previously, employees who sued to recover wages and overtime pay under the Minimum Wage Law were entitled to recover the amount of any underpayment plus a statutory penalty of 2% of the amount of the underpayment per month that amount goes unpaid. The new law more than doubles the statutory penalty to 5% per month. Even more significantly, the law creates a new provision allowing employees to recover not just the amount of wages owed, but triple that amount.

To put this in dollar terms, before this new law, an employee who was underpaid by $100 per month over 3 years could recover $4,932 ($3,600 in wages plus $1,332 in penalties). Under the new law, the same employee could recover $14,130 ($10,800, or three times the amount of wages owed, plus $3,330 in penalties). These changes are likely to encourage employees and plaintiffs’ lawyers to pursue claims for even modest underpayments. Employers may also find it far more difficult and expensive to settle minimum wage and overtime claims under the new law. The penalty provisions of the law are effective immediately.

Recordkeeping

The law also adds new teeth to the Minimum Wage Law’s recordkeeping provisions. Until now, the Minimum Wage Law did not provide for any monetary penalties for failure to keep required records. Under the new law, an employer that fails to maintain records required by the Minimum Wage Law are subject to a penalty of $100 for each impacted employee, also payable to the Department of Labor’s Wage Theft Enforcement Fund. Among other things, the Minimum Wage Law requires employers to keep a record of “the hours worked in each day and in each work week by each employee.” The law does not create any exception to this timekeeping requirement for exempt employees, and the Department of Labor’s regulations under the Wage Payment and Collection Act expressly state that employers are required to keep daily time records for all employees “regardless of an employee’s status as either an exempt administrative employee, executive or professional.”

Internships and Students

There are some special rules to help determine whether interns and students working for “for profit” employers are entitled to minimum wages and overtime pay under the Fair Labor Standards Act¹ (FLSA). The FLSA requires “for profit” employers to pay employees for their work. Interns and students, however, may not be “employees” under the FLSA—in which case the FLSA does not require compensation for their work. Courts have used the “primary beneficiary test” to determine whether an intern or student is, in fact, an employee under the FLSA. In short, this test allows courts to examine the “economic reality” of the intern-employer relationship to determine which party is the “primary beneficiary” of the relationship.

¹The FLSA exempts certain people who volunteer to perform services for a state or local government agency or who volunteer for humanitarian purposes for non-profit food banks. The Wage and Hour Division also recognizes an exception for individuals who volunteer their time, freely and without anticipation of compensation, for religious, charitable, civic, or humanitarian purposes to non-profit organizations. Unpaid internships for public sector and non-profit charitable organizations, where the intern volunteers without exception of compensation, are generally permissible.

Next Steps

It’s important for your Company to address the new law and how it will impact your Company’s costs. Consider the following steps:

• Plan for how the increased minimum wage may affect bargaining with unions and existing wage schedules under union contracts.

• Conduct a comprehensive wage and hour compliance review. Even though Federal law may provide an exemption for minimum wages, the Illinois Minimum Wage Law doesn’t.

• If your organization does not currently keep a daily record of hours worked by exempt employees in Illinois, your Company needs to start doing this.

• If you have 50 or fewer employees, be sure to talk with your tax advisers about the new tax credit.

Contact Us

For assistance in reviewing the impact of law on your Company, reach out to Benefits and Compensation Resources (BCR). Phone 847.236.1208 or info@b-cresources.com

Written by: Barbara Manny, BCR President & Consultant

BCR is a local, minority-owned firm with more than 25 years experience in serving non-profit, public, and privately held entities in the key areas of Benefits and Compensation Consulting, Performance Management, Human Resource Organization Development, and Human Resource Information Systems and Processes.

 

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