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Employee vs. Contractor

Law abiding employers face a competitive disadvantage when competing for business or bidding for jobs against employers who misclassify. Misclassifying employers have artificially low costs because they have not covered the cost of unemployment insurance contributions and workers' compensation for their employees. Law abiding businesses that properly classify their employees are subsidizing businesses that misclassify and could end up paying higher unemployment insurance contributions, higher workers' compensation premiums, and higher taxes than would be required if all employers followed Illinois law.

Misclassification occurs if any employer treats workers as "independent contractors" when they are employees. Some employers use this tactic to avoid compliance with:

Employee or Contractor? Its as easy as A, B, C:

Service performed by an individual for an employing unit, whether or not such individual employs others in connection with the performance of such services, shall be deemed to be employment unless and until it is proven in any proceeding where such issue is involved that

  1. Such individual has been and will continue to be free from control or direction over the performance of such services, both under his contract of service and in fact; and
  2. Such service is either outside the usual course of the business for which such service is performed or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and
  3. Such individual is engaged in an independently established trade, occupation, profession, or business.

Establishing an IDES account:  Every newly-created employing unit in Illinois must file a UI-1 report within 30 days of the date upon which it commences business.

Consequences of Misclassifying Employees as "Independent Contractors" may include:

  • Interest on delinquent unemployment insurance trust contributions at an annual rate of 24 percent
  • Financial penalties for failing to report wages paid to employees
  • Financial penalties for willfully failing to make contributions to the unemployment insurance trust.
  • Additionally, officers and employees who willfully cause a business to fail to make payments into the system can now be held personally liable for the payments due from the business.

Workers' Compensation:  An employer that knowingly and willfully fails to obtain insurance may be fined up to $500 for every day of noncompliance, with a minimum fine of $10,000. Corporate officers can be held personally liable if the company fails to pay the penalty. In addition, corporate officers who are found to have negligently failed to obtain insurance are guilty of a Class A misdemeanor; if they are found to have knowingly failed to obtain insurance, they are guilty of a Class 4 felony. An employee who is injured during the time the employer was uninsured may sue the employer in civil court, where damages are unlimited.


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