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Payroll for Illinois Businesses

Managing compliance and payroll processing in Illinois poses a range of challenges for businesses: from adapting to minimum wage increases to providing mandatory PTO, meeting workers’ comp requirements, and paying variable SUTA (state unemployment) taxes.

Payroll Freedom provides comprehensive payroll solutions tailored to support Illinois businesses, ensuring compliance with state laws and helping companies save time and reduce administrative burdens.

Illinois Payroll Compliance 

It’s essential for small and medium-sized businesses in Illinois to understand and adapt to recent and forthcoming legislative changes to ensure long-term payroll efficiency and compliance. Here are just some of the unique state and local requirements for business in Illinois:

  • An employer in Illinois must acquire workers’ compensation from a third-party insurer unless they self-insure.

  • Minimum wage in Illinois increased to $14.00 per hour as of January 1st, 2024 and is set to increase to $15.00 per hour by 2025. Chicago’s local minimum wage rate is currently distinct from the state rate and increased to $16.20 in July 2024 (among city employers with at least four employees).

  • Illinois charges both state income tax and state unemployment tax.

  • Illinois enforces mandatory paid time off for any reason, allowing workers to earn up to 40-hours of PTO to use within a twelve-month period.

  • Illinois shares income tax reciprocity with four other states (Iowa, Kentucky, Michigan, and Wisconsin) to prevent double taxation for certain employees.
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Ensuring Compliant and Efficient Payroll
for Illinois Businesses

In addition to fulfilling standard federal payroll tax and compliance requirements (federal income tax, FICA taxes, FUTA, etc.) businesses in Illinois must also pay state income taxes, SUTA, and abide by a number of regulations related to overtime, workers’ comp, paid leave, and much more. In Cook County and the City of Chicago, some local regulations deviate from state regulations, as well. Let’s explore the major responsibilities of Illinois employers regarding state and local taxes and compliance.

State Income Taxes

Any Illinois employer who withholds federal income taxes for an employee must also withhold state taxes. This applies to all employees unless they are a nonresident working in Illinois but living in Iowa, Kentucky, Michigan, or Wisconsin, where income tax reciprocity agreements apply.

In Illinois, there is a flat tax rate of 4.95% of net income, permitting a $2,425 allowance per exemption. If withholdings are equal to or greater than $12,000 per quarter, payments must be made semiweekly. Withholdings of less than $12,000 quarterly can be paid on a monthly basis.

Income Tax Reciprocity Agreements

When an employee works in Illinois but resides in either Iowa, Kentucky, Michigan, or Wisconsin, they are only required to pay state income tax in the state where they live, avoiding double taxation. Similarly, if an employee resides in one of the reciprocity-granting states and has a spouse in the military stationed in Illinois, the employee is not subject to Illinois taxation/double taxation.

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State Unemployment Insurance in Illinois

In Illinois, SUTA is charged on a taxable wage base of $13,271 with rates ranging from 0.85% up to 8.65%. Although the customary tax rate for new employers is 3.95%, employers with quarterly total wages of less than $50,000 pay no more than 5.4% (usually below).

Most employers in Illinois are required to pay SUTA, with some exceptions based on gross wage payroll, cash payment thresholds, worker types, and other factors. Working with a qualified payroll provider like Payroll Freedom can simplify SUTA taxes and determinations, including by providing guidance on receiving a 5.4% discount on FUTA (Federal Unemployment Tax Act) taxes, shifting from a 6% to 0.6% tax obligation.

Illinois Workers’ Comp

Illinois employers – even those with only one part-time employee – are required to provide workers’ compensation insurance to employees. Uniquely, this includes most family workers, excluding those who work extremely limited hours. Although Illinois employers have the option to self-insure, the vast majority of businesses opt to buy third-party workers’ comp insurance.

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Illinois State and Local Minimum Wage Laws

Among employees 18 and older, minimum wage in Illinois (2024) is set at $14.00 per hour with plans to increase to $15.00 per hour in 2025: a rate significantly higher than the current federal minimum wage of $7.25. Wages for employees under 18 years old are set at $12.00 per hour in 2024 and will shift to $13.00 per hour in 2025. These rates apply to the vast majority of businesses, especially those with four or more employees. In certain fields, tips/gratuities are eligible to account for up to 40% of minimum wage owed.

In Cook County and the City of Chicago, minimum wage rates are distinct from the state rate. As of July 2024, Chicago’s minimum wage rate for employers with 4 or more employees is $16.20 per hour. Among tipped workers, minimum wage is set to $11.02, also applying to employers with 4 or more employees. When an employee’s wages plus tips do not meet the required minimum wage, the employer is responsible for paying the difference. The minimum wage in the City of Chicago for concessionaire agreements or under City contracts is $17.40 per hour or $9.40 per hour among tipped employees. As of July 2024, the minimum wage in Cook County is $14.05 per hour and $8.40 per hour for tipped employees.

Due to the shifting nature of both state and local minimum wage rates, it’s essential for small and medium-sized businesses in Illinois to adjust budgetary planning for 2025 and beyond, while ensuring compliance with all current and forthcoming regulations.

As of July 1, 2024, the minimum wage in Cook County increased to $14.05 per hour. The base wage for tipped employees remains $8.40 per hour. Cook County also has unique requirements regarding commuter benefits.

Overtime Regulations in Illinois

In Illinois, employers must provide at least 1.5x overtime pay for employees who work over 40 hours in a workweek. In addition to hourly workers, this includes nonexempt employees. A number of exceptions apply based on state and FLSA regulations.

Employee Pay Regulations in Illinois

Employers in Illinois are entitled to pay employees through a variety of methods, but employees must agree in writing to be paid electronically through pay card or direct deposit. During each pay period, employees must be given an itemized pay stub that indicates wages, net pay, and deductions. Providing itemized pay stubs, like automating direct deposit pay, is simplified with the use of payroll software and support from a qualified payroll provider like Payroll Freedom.

Illinois mandates that employees be paid semi-monthly (specifically, within 13 days after the end of the previous pay period). Only executive, administrative, professional, and FLSA-defined commission-based employees can be paid monthly.

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Additional Employee Benefits and HR Laws in Illinois

In addition to the state and local payroll-related regulations we’ve already explored, you should also be aware of some of the HR laws that impact your business’ payroll and compliance practices.

Rest & Meal Breaks

Employers in Illinois are required to provide at least 24 hours of rest per calendar week (equating to one day off out of every six days). This requirement can only be waived by a written employee agreement. Per every 7.5-hour shift, employers must provide employees a break of 20 minutes or more, and this must occur within five hours of the start of the shift.

Leave for Child Bereavement

Illinois employees at companies with 50 or more employees can take time off to mourn the loss of a child. They can use their paid time off, and the bereavement leave can range from six to twelve weeks depending on the company's size and the circumstances of the child's death. Employees can take this time off up to one year after the child's passing.

Paid Time Off in Illinois

Employers in Illinois are required to provide up to 40 hours of yearly paid leave for any reason. The employee is not required to specify the reason for the request (e.g. sick leave, personal time, or otherwise). Employees can also use up to two hours of PTO to participate in elections/voting.

Employing Minors

Illinois child labor laws require all minors to have employment certificates. Employers are only permitted to employ minors for a specific number of hours based on age categories and can only work in certain non-hazardous industries.

Optimize Illinois Payroll Services with Payroll Freedom

Handling your business’ payroll and HR processes manually can be daunting, especially in Illinois, where regulations are complex and dynamic.

It’s critical to work with an Illinois payroll provider that offers specialized experience in local and state compliance as well as technology and personalized support that adapts to the specific needs of your business. 

With a dedicated office in Mundelein, Illinois, Payroll Freedom simplifies payroll, compliance, and related HR processes so you can return focus to core business tasks and enjoy lasting peace of mind.

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