Amy Rizzo: Today we are here to discuss some recent changes in Illinois law surrounding mandated paid leave for employees. On March 13, 2023, Illinois Governor J. B. Pritzker signed the Paid Leave for All Workers Act.
Question 1: What is the purpose of the Act and what does it change?
Madeline F. Kelleher: The Act is the first statewide paid leave law in Illinois, mandating paid leave for employees to use for any reason of their choosing. The new Act, including the paid leave accrual requirements, will take effect on January 1, 2024. This means that prior to January 1, 2024, ALL Illinois employers should review their current policies and procedures for compliance and take the necessary actions that must be done in 2023.
The Act will require every Illinois employer to provide each of their employees up to 40 hours of paid leave for every 12-month period at an accrual rate of 1 hour of paid leave for every 40 hours worked.
Employees may use this paid leave for any reason of their choosing. Meaning, reasons for paid leave include illnesses, vacation, care of a family member, etc.
While on leave, employees must be paid their normal hourly rate of pay. For employees who are regularly paid gratuities or commissions as part of their pay, their pay rate must be at least minimum wage in their jurisdiction of employment.
Question 2: Does this decision apply to all employers?
Madeline F. Kelleher: Yes. Notably, in the Act, the definition of “employer” includes any individual, partnership, association, corporation, limited liability company, business trust, employment and labor placement agency, and even includes the State of Illinois and local governments, as well as any agencies and political subdivisions thereof.
Question 3: Does this decision apply to all employees?
Andrew J. Boling: Generally, yes, with some exceptions. The Act does not distinguish between part-time, full-time, or seasonal employees. This means that employers of day and temporary laborers, or nannies, are not exempted from providing these employees with paid leave under the Act. Such employers should also consider their obligations under the Day and Temporary Labor Services Act and the principles of joint employment.
However, the Act does not cover individuals who meet the legal definition of an independent contractor and state and federal government employees. There are also exceptions for five categories of employees, including:
Employees who come within the definition of “employee” under the federal Railroad Unemployment Insurance Act;
2. School district or park district employees;
3. College or university students providing temporary services for their college or university;
4. Short-term employees of institutions of higher education; and
5. Construction, delivery, pickup, transportation and state agency employees who are working under a bona fide collective bargaining agreement.
Question 4: What if the employer already provides paid leave?
Andrew J. Boling : If the employer already provides paid leave but does not meet the minimum requirements of the Act, the employer must add additional paid leave to their policy.
Question 5: Can an employer choose to provide employees with more paid leave or provide their employees with paid leave at a different rate than that provided under the Act?
Madeline F. Kelleher: Yes. So we know that the Act states that accrued time must be provided at a rate of 1 hour of paid leave for every 40 hours worked.
However, as just mentioned, this is a minimum requirement, meaning that an employer can choose to provide its employees with more than 40 hours of paid leave in a 12-month period.
For example, if an employer chooses to provide its employees with 80 hours of paid leave in a 12-month period, it can be accrued at a rate of 2 hours of paid leave for every 40 hours worked or 1 hour of paid leave for every 20 hours worked, which would both total 80 hours of paid leave per 12-month period.
It doesn’t matter as long as the rate of benefit is at least 1 hour of paid leave for every 40 hours worked and the paid leave policy follows the remaining provisions of the Act.
Similarly, an employer may provide paid leave in smaller, proportional increments, such as on an hourly rate of 0.025 hours of paid leave per hour worked. Again, this is as long as the rate of benefit is at least 1 hour of paid leave for every 40 hours worked.
Question 6: How does accrual work under the Act?
Madeline F. Kelleher: An employee will accrue paid leave time based on number of hours worked, again, at a rate of 1 hour of paid leave for every 40 hours worked, up to a maximum of 40 hours of paid leave that an employee is entitled to per every 12-month period. This is what we at K+H call the “Accrual Method.”
So while a full-time worker will likely accrue the full 40 hours of leave by the end of the 12-month period, a part-time worker might not and, rather, might have accrued fewer than the full 40 hours of leave. It is just based on the number of hours the employee has worked.
Example: Employee A works 15 hours per week, 52 weeks per year. Employee A will accrue 19.5 hours of paid leave annually. (15 x 52 = 780 hours worked per year. 780/40 = 19.5 hours of paid leave).
Additionally, employees who are exempt from the overtime requirements of the federal Fair Labor Standards Act are generally deemed to work 40 hours in each workweek for purposes of paid leave time accrual if they regularly work 40 or more hours in a workweek. If such employee’s regular workweek is less than 40 hours, their paid leave time accrues based on the number of hours in their regular workweek as previously explained in the example.
Question 7: When can employees start accruing paid leave?
Madeline F. Kelleher: Under the Accrual Method, each employee’s paid leave begins accruing upon either the employee beginning employment in 2024 or on January 1, 2024, whichever is later. A few examples:
Example 1: Employee A has worked for their employer since 2019 but did not previously get paid leave. Employee A will begin accruing paid leave beginning January 1, 2024.
Example 2: Employee B has worked for their employer since 2019 and previously received paid leave. Employee B will begin accruing paid leave beginning January 1, 2024.
Example 3: Employee C begins employment on July 1, 2024. Employee C will begin accruing paid leave on the first day of employment (July 1, 2024).
Note that we will use these three examples a few times in this presentation.
Question 8: When can employees start using earned accrued paid leave?
Madeline F. Kelleher: After the Act takes effect, employees will be entitled to begin using accrued paid leave 90 days after the commencement of their employment or 90 days after January 1, 2024. As you can see, the same three examples to those we just went over are on the screen. Let’s go through them to see how this works:
Example 1: Employee A has worked for their employer since 2019 but did not previously get paid leave. Employee A will begin accruing paid leave beginning January 1, 2024 but must wait to begin using earned paid leave until March 31, 2024, 90 days later.
Example 2: Employee B has worked for their employer since 2019 and previously received paid leave. Employee B will begin accruing paid leave beginning January 1, 2024 but must wait to begin using earned paid leave until March 31, 2024, 90 days later.
Example 3: Employee C begins employment on July 1, 2024. Employee C begins accruing paid leave on the first day of employment (July 1, 2024), but must wait 90 days (until September 29, 2024) before using any accrued paid leave.
Question 9: Can an employee carry over any accrued paid leave not used in the previous 12-month period?
Andrew J. Boling: Under the Accrual Method, employers must allow employees to carry over all unused paid leave from one 12-month period to the next. However, no employer is required to provide more than 40 hours of paid leave for an employee to have in the employee’s reserves in one 12-month period unless the employer already provides that their employees can have a larger amount of paid leave per 12-month period and then an employee can only have a reserve of paid leave up to that larger amount.
Question 10: Can an employer institute a longer paid leave accrual introductory period than that under the Act?
Andrew J. Boling: No. Paid leave must begin accruing no earlier than 90 days after their hire date or 90 days after January 1, 2024, whichever is later.
For example, an employer cannot continue a one-year post-employment introductory timeframe for paid leave to start accruing or being used by the employee.
Question 11: Do employers have any flexibility in designating the 12-month paid leave accrual period?
Madeline F. Kelleher: Yes. So, some employers already offer their employees paid leave and use a different 12-month period begin date other the first day of the year, such as employees’ work anniversary dates, the employer’s fiscal year or health plan year, or some other 12-month period.
Under the Act, the 12-month period may be any consecutive 12-month period designated by the employer in writing at the time of hire or upon notice prior to the change.
To use a different 12-month period, rather than starting over January 1, 2024, there are a few requirements:
1. The accrual period must cover 12 consecutive months;
2. The accrual rate must not be less than 1 hour of paid leave for every 40 hours worked;
3. The employer MUST provide written notice to its employees before January 1, 2024 (or at the time of hire after January 1, 2024) explaining that the employer is using a specific 12-month period for paid leave accrual; and
4. The employer MUST provide its current employees with documentation of the balance of hours worked, paid leave accrued and taken, and the remaining paid leave balance at the time of notice of the change.
Question 12: Does this mean an employer can no longer frontload paid leave at the beginning of the year?
Andrew J. Boling: No. Employers can continue frontloading paid leave. At K+H we call this the “Frontloading Method.”
Under the Frontloading Method, employers can take the minimum 40 hours of annual paid leave and make it available to its employees on the first day of employment or the first day of their 12-month annual accrual period.
All employees still have a 90-day waiting period from January 1, 2024 or the first day of employment if hired in 2024 or later.
What’s more is that under the Frontloading Method, employers are not required to allow employees to carryover paid leave and may require employees to use all paid leave prior to the end of the benefit period or forfeit the unused paid leave.
Employers using the Frontloading Method must not forget to track the actual hours worked by each employee, because if an employee would have received more paid leave under the accrual method, the employer must provide that additional time.
Question 13: Do employers have any flexibility in designating the 12-month paid leave period under the Frontloading Method?
Andrew J. Boling: Yes. If an employer wishes to use a different 12-month period other than the beginning of the calendar year under the Frontloading Method, the employer must meet similar requirements as that under the Accrual Method:
1. The frontloading period must cover 12 consecutive months;
2. The frontloaded paid leave must be at least 40 hours;
3. The employer MUST provide written notice to its employees before January 1, 2024 (or at the time of hire after January 1, 2024) explaining that the employer is using a specific 12-month period for paid leave; and
4. The employer MUST provide its current employees with documentation of the balance of hours worked, paid leave taken and the remaining paid leave balance at the time of notice of the change.
Question 14: Can employers set a minimum number of paid leave hours an employee can use a day?
Madeline F. Kelleher: Yes. While employees may determine when they use leave and how much they choose to use of their reserves, employers may set a minimum leave increment of up to 2 hours per day. In other words, an employer may require that an employee use at least 2 hours of paid leave on any given single day.
For example, if an employee has a doctor appointment, but needs only 1 hour of paid leave, if the employer has set a minimum 2-hour paid leave requirement, the employee will use up 2 hours of paid leave for the doctor appointment, whether or not actually used.
Question 15: Are there any notice or recordkeeping requirements under the Act?
Madeline F. Kelleher: Yes. Written notice of the Act’s requirements must be posted in a “conspicuous” place at the workplace and in the employee handbook (if the employer has a handbook). This notice must include:
The Illinois Department of Labor’s existing notice regarding the Act; and
If applicable, a notice that employees are responsible for paying their share of any health insurance to maintain coverage while on leave.
In addition, if an employer makes a change to its notification requirements for employees to request paid leave, the employer must provide notice to its employees within 5 calendar days after making the change. to its policy. Also, if the workforce contains non-English speakers, the notices must be published in their native language.
Employers must also maintain records for each employee showing:
1. Number of hours worked;
2. Number of paid leave hours accrued and taken; and
3. Remaining paid leave balance.
These records must be kept for at least 3 years and be available for inspection by the Illinois Department of Labor and, if an employer uses the Accrual Method, by the employee upon request.
Question 16: Must paid leave provided under the Act be paid out upon an employee’s termination, resignation, or retirement?
Andrew J. Boling: It depends. While the Paid Leave for All Workers Act does not itself require the payout of unused leave unless the leave is credited to the employee’s paid leave bank or employee vacation account, under the Illinois Wage Payment and Collection Act, employers could potentially have obligations to pay an employee unused accrued paid leave upon termination, resignation or retirement. Employers across the state are waiting/hoping for additional guidance on this point. At this point, the safest course is to treat Paid Leave as a form of vacation. However, employers with a greater appetite for risk should consider segregating Paid Leave from vacation and addressing Paid Leave in a separate policy that expressly states accrued and unused Paid Leave will not be paid at termination of employment. Sections 15 (j) and (L) of the Act are key here. There is another potential benefit to addressing PLAWA as a discrete policy. PLAWA leave can be used with little to no notice, while employers can impose and enforce strict controls on the use of vacation days. Some companies are deciding to peel off PLAWA leave from existing vacation/PTO leave such that employees receive the same total number of days, but with different strings attached.
If the employer is obligated to pay an employee unused accrued paid leave upon termination, resignation or retirement, there are two considerations under the Paid Leave for All Workers Act:
1. First, if the employer elects to use the Frontloading Method and the employee uses all of their leave and then quits before the end of the 12-month period, the employer does not have to pay the employee any unused paid leave. Additionally, in this scenario, an employer may not make the employee repay paid leave time, as benefits that have already been provided may not be retroactively diminished.
2. Second, on the other hand, if the employer elects to use the Accrual Method and the employer lets an employee borrow against future accrual, meaning the employee’s paid leave balance goes negative, then the employee quits while the paid leave balance is negative, the employer may make an employee repay any and all borrowed accrued leave. This is ONLY if the employer includes a future accrual borrowing provision in the employer’s written paid leave policy that also allows for the employee’s repayment of borrowed accrued leave and the employee agrees to that policy in writing prior to taking any leave.
Question 17: What about counties and cities that already have an ordinance regarding paid leave? Which one do employers have to follow?
Madeline F. Kelleher: The Act applies only to employers located in jurisdictions that have opted out of a local paid leave law or ordinance. The Act provides:
“The provisions of this Act shall not apply to any employer that is covered by a municipal or county ordinance that is in effect on the effective date of this Act that requires employers to give any form of paid leave to their employees, including paid sick leave or paid leave.”
For example, Cook County already has in place the Earned Sick Leave Ordinances. Under the provision of the Act I just read, the Cook County ordinance would override the Act, meaning that employers must follow only the obligations of the Cook County ordinance.
Thus, it is extremely important to know whether or not your local jurisdiction, whether it be a city or county, already has a paid sick leave or general paid leave ordinance or law in place.
With this, it is important for employers to confer with legal counsel to ensure your compliance with the right paid leave rules depending on the location of your business.
Please check to see if the Cook County act allows for cities to decline to participate. I think some aspects of the Cook County law do not apply to some key business centers, such as Schaumburg.
Cannot decline to participate. Must be at least the same requirements as Cook County.
Question 18: What are the consequences of non-compliance with the Act?
Madeline F. Kelleher: The Illinois Department of Labor is charged with administering and enforcing the Act. Employees may file complaints with the Illinois Department of Labor within 3 years of an alleged violation of the Act, and the Illinois Department of Labor may refer such violations to an administrative law judge to schedule a formal hearing.
Employers that violate the Act may also be subject to a civil suit by an affected employee for damages, including the amount of the actual underpayment, any other compensatory damages, and a penalty of $500 to $1,000. The Act further allows employees to recover appropriate equitable relief, as well as reasonable attorneys’ fees and expert witness fees. Additionally, employers will be subject to a $2,500 civil penalty for each separate offense, to be deposited into a special fund created in the state treasury dedicated to enforcing the Act. There is a fear that PLAWA could evolve into a windfall for plaintiffs’ lawyers, much like the Illinois Biometric Privacy Act.
1. If an employee requests sick leave prior to using all 40 hours of paid leave, will the sick leave use up the paid leave?
Andrew J. Boling: Yes. Under the Act, paid sick leave is not in addition to paid leave.
2. Can an employer use the Accrual Method for specific employees and the Frontloading Method for other employees?
Andrew J. Boling: Yes. An employer can use different methods for different types of employees. For example, it could use the Frontloading Method for full-time employees and the Accrual Method for part-time, seasonal, and temporary employees.
3. Does an unlimited paid leave policy comply with the Act?
Madeline F. Kelleher: Yes, as long as it meets the requirements of the Act. To determine whether a specific employer’s unlimited paid leave policy is compliant with the Act would require a fact-specific analysis. One factor would be whether the employees actually do, or have the ability to, take at least a full 40 hours in a year. Another factor would be whether the employees were paid their normal rate of pay for the time they took off. The list goes on. It is important to have your unlimited paid leave policy reviewed by an attorney to ensure compliance with the Act.
4. Are schools required to comply with the Act?
Madeline F. Kelleher: Public school districts organized under the School Code are exempt from the Act. A private school, not organized under the School Code, is not exempt from the Act and would have to comply.