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Payroll management in Illinois

Illinois has a diverse economy supported by industries such as manufacturing, finance, healthcare, and agriculture. With a higher minimum wage than the federal requirement and specific payroll tax obligations, Illinois employers must navigate a range of payroll regulations. Understanding these rules ensures compliance and smooth payroll operations.

Payroll breakdown in Illinois

Employers in Illinois must adhere to both federal and state payroll regulations regarding wages, taxes, and benefits. Below is an overview of key payroll components:

Minimum wage and overtime

  • Minimum wage: As of 2024, Illinois’ minimum wage is $14.00 per hour, with scheduled increases reaching $15.00 per hour by 2025.
  • Overtime rules:
    • Illinois follows federal overtime laws, requiring employers to pay 1.5 times an employee’s regular rate for hours worked beyond 40 hours in a workweek.
    • Some exemptions apply for certain industries and positions.

State income tax

  • Illinois has a flat state income tax rate of 4.95% for all employees.
  • Employers must withhold state income tax and remit it to the Illinois Department of Revenue.

Unemployment insurance (UI) tax

  • Employers must contribute to Illinois’ Unemployment Insurance (UI) program, managed by the Illinois Department of Employment Security (IDES).
  • The wage base for UI tax in Illinois is $13,590.
  • UI tax rates vary based on an employer’s experience rating and range from 0.2% to 7.6%.

Workers’ compensation

  • Illinois law requires all employers to carry workers’ compensation insurance to cover medical expenses and lost wages for employees injured on the job.

Payroll tax filing and payment deadlines

  • Employers must register for an Illinois Withholding Tax Account Number with the Illinois Department of Revenue.
  • State withholding tax returns must be filed monthly, quarterly, or annually, depending on employer classification.
  • UI tax reports must be submitted quarterly to the Illinois Department of Employment Security.
  • Payroll tax payments can be made electronically through MyTax Illinois.

Quick facts: Important considerations for employers

  • Higher state minimum wage: Illinois has a higher minimum wage than the federal requirement.
  • Final paycheck rules:
    • If an employee is terminated, employers must provide the final paycheck by the next scheduled payday.
    • If an employee resigns, the final paycheck must be provided by the next scheduled payday.
  • New hire reporting: Employers must report new hires to the Illinois New Hire Reporting Center within 20 days.
  • Paid sick leave: Illinois does not mandate paid sick leave at the state level, but local ordinances, such as those in Chicago and Cook County, require paid sick leave.
  • Payroll recordkeeping: Employers must maintain payroll records for at least three years to comply with state and federal laws.
  • Right-to-work status: Illinois is not a right-to-work state, meaning employees may be required to join a union if applicable.

Run payroll in Illinois with Remote

Managing payroll in Illinois requires careful attention to state-specific regulations, including minimum wage compliance, UI tax requirements, and workers’ compensation laws. Employers must stay informed about tax rates, wage laws, and reporting deadlines to ensure smooth payroll processing and avoid penalties.

To see just how easy global payroll can be, book a demo today.