On February 19, 2019, Illinois Governor J.B. Pritzker signed Senate Bill 1, which increases the minimum wage in Illinois to $15 per hour by 2025. Under the new law, the minimum wage will increase from $8.25 to $9.25 on January 1, 2020, to $10.00 on July 1, 2020. Thereafter, the minimum wage will increase by $1.00 per hour each January 1, until it reaches $15.00 per hour on January 1, 2025. 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.
While most of the headlines about the new law focus on the minimum wage increase, 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 treble that amount.
To put this in dollar terms, before this new law, an employee who was underpaid by $100 per month over three 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 law also adds other new penalties payable to the Illinois Department of Labor. The Minimum Wage Law already provided that if an underpayment is found to be willful, repeated, or reckless, the employer is liable to the Department of Labor for a penalty of 20% of the amount of the underpayment. The new law adds an additional penalty of $1,500, payable to the Department of Labor’s “Wage Theft Enforcement Fund.”
The law also adds new teeth to the Minimum Wage Law’s record keeping 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 is 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.”
The penalty provisions of the law are effective immediately.
In light of the new law, Illinois employers should consider the following steps:
- Review all wage rates and begin planning for how to address the increased minimum wage taking effect on January 1, 2020.
- Plan for how the increased minimum wage may affect bargaining with unions and existing wage schedules under union contracts.
- With the assistance of legal counsel, conduct a comprehensive wage and hour compliance review.
- If your organization does not currently keep a daily record of hours worked by exempt employees in Illinois, start doing so.
- If you have fifty or fewer employees, be sure to talk with your tax advisers about the new tax credit.
- Don’t hesitate to seek professional advice about wage and hour questions. The cost of a fifteen minute phone call with an experienced wage and hour lawyer is a drop in the bucket compared to the severe new penalties for even innocent mistakes under the new law.