Illinois Payroll Regulations for 2025: What Employers Need to Know

If you're an Illinois employer, it's critical to stay informed about the upcoming Illinois payroll regulations for 2025. Key changes are on the horizon, including updates to wage and hour laws, payroll tax rates, worker classification rules, and pay transparency requirements. Failure to comply could lead to steep penalties. Here’s everything you need to know about Illinois payroll compliance for 2025.

2025 Illinois Payroll Tax Law Changes

In 2025, the Illinois state unemployment tax law will maintain a minimum employer contribution rate of 0.3% (0.85% with fund building) and a maximum rate of 8.1% (8.65% with fund building) on a taxable wage base of $13,590. While these rates remain unchanged from 2023, they may be subject to further updates in January 2025.

Pay Transparency Requirements for 2025

Pay transparency is a growing focus in Illinois.  An amendment to the state's Equal Pay Act requires employers with 15 or more employees to disclose salary ranges and benefits in job postings. As of January 1, 2025, Illinois employers must include:

• The actual wage or salary, or range for the position
• General description of benefits and other compensation offered in good faith
• Description of benefits, such as bonuses, stock options, insurance, and incentives

Additionally, employers must post publicly accessible information about employee benefits in a central and public location on their website. Illinois employers using third parties for job posts must provide those third parties with comprehensive benefits information to use in the job posts.

Payroll Freedom can assist with complying with this new mandate, and ensuring that prospective employees and third parties have thorough information about your benefit programs and payscales that comply with Illinois employment laws.

Wage Reporting and Overtime Rules Updates

Illinois employers will face various federal, state, and local changes to wage and hour regulations, primarily paid leave. Payroll systems will need to adjust for these incoming changes. They include:

Federal Fair Labor Standards Act (FLSA) Overtime Threshold Increase Proposal

The federal Department of Labor has not yet posted final rules regarding overtime exemptions, but changes will go into effect in 2025. The current proposal increases the salary threshold under the FLSA to $55,068 to be exempt from minimum wage and overtime regulations. It is currently $35,568. The "highly compensated employee" threshold is also proposed to increase to $143,988; the current threshold is $107,432.

If the final rule is issued, a much larger group of employees will be entitled to overtime pay and minimum wage protections. This applies to employers around the nation regardless of number of employees.

Illinois State Minimum Wage to Increase to $15 Per Hour

The current state minimum wage in Illinois is $14 per hour. It will increase to $15 per hour in 2025.

Illinois Paid Leave Updates

There are numerous laws affecting paid leave that go into effect in 2025:

• Paid Leave for All Workers (PLAWA): All private sector workers, with the exception of seasonal employees and college students holding temporary jobs for universities, must be granted 40 hours of paid leave during a 12-month period. Illinois employers already adhering to the paid leave ordinances in Chicago or Cook County do not have to comply with PLAWA. If your organization already has paid leave programs, employees must have at least 40 hours of paid time off during a 12-month period and be able to take that leave for any reason.
  
  
• Child Extended Bereavement Leave Act: Illinois employers with at least 50 full-time employees must provide up to 6 weeks of unpaid leave if an employee experiences the loss of a child by suicide or homicide. Large employers with 250 or more full-time employees must provide up to 12 weeks of unpaid leave. This state law includes adopted and foster children, stepchildren, and legal wards.
  
  
• Employee Blood and Organ Donation Act: 2025 Illinois employment law changes include an update to this state law that mandates Illinois employers with at least 51 employees provide employees with up to 10 days of paid leave during the year if they are organ donors. Every 56 days, employees must be given one hour of paid leave if they donate blood.
  
  

New Record-Keeping and Employee Classification Rules

Under Illinois' Freelance Worker Protection Act, there are now additional protections for freelancers and administrative requirements for employers that work with independent contractors.

Organizations that work with independent contractors (or their non-governmental entities) who provide products or services in Illinois worth at least $500 within a 120-day period must pay all of their compensation within 30 days of the completion of work unless their contract dictates they be paid earlier. Contracting entities cannot ask freelancers to accept less pay than what's in their contracts in order to pay them on time.

Freelance contracts also need to include:

• Names, mailing addresses, and contact information of both parties
• An itemized list of products and services provided
• Value of the products and services
• Rate and method of compensation
• Due date for payment or outline of how payment due date is determined
• Deadline that the freelancer must meet for submitting a list of products and services if one is required to meet the contracting entity's internal processing needs

Organizations that work with freelancers must keep a copy of these contracts on hand for at least two years and readily available for the Illinois Department of Labor to inspect upon request. Payroll Freedom can ensure that your contracts are compliant with Illinois state law so that workers are not reclassified as employees, vastly increasing payroll tax obligations as a result.

Penalties for Non-Compliance in 2025

Failure to comply with the new payscale transparency laws can result in steep penalties. If a job posting is active, the following penalties may occur:

• First offense: $500 if the required information is not added within 14 days of a violation notice
• Second offense: Up to $2,500 if the required information is not added within 7 days of a violation notice
• Third or subsequent offense: Up to $10,000 with no grace period

If a job posting is inactive but not compliant, the following penalties may also apply:

• First offense: Up to $250
• Second offense: Up to $2,500
• Third or subsequent offense: Up to $10,000
  
  

Preparing Your Business for 2025 Payroll Compliance

• Adjust your payroll software as needed. There may be more significant swaths of employees who qualify for overtime protections in 2025 or who must be paid a higher wage. Paid leave is also mandated in more situations than before. You may need to reassess your current payroll solution and determine if it needs an update or complete replacement to stay compliant.
  
  
• Conduct internal audits. As far as Illinois payroll regulations in 2025 go, certain items need to be audited internally. If your organization regularly works with independent contractors, consult your legal team to ensure that any new freelancer agreements are compliant with the new laws. Job posts need to be carefully examined for compliance with pay transparency laws, even if the position was filled and the post marked as inactive.
  
  
• Stay up to date. There are so many federal, state, and local regulations going into effect in 2025. As 2024 is an election year, even more changes are guaranteed to come no matter which candidate wins. Staying vigilant regarding employment law changes is crucial for staying compliant, and Payroll Freedom is here to help you stay on top of them so you can focus on more strategic goals.

Need help navigating Illinois payroll regulations for 2025? Contact Payroll Freedom today for expert guidance and payroll solutions tailored to your business.