Illinois Minimum Wage: Guide & Best Practices

As an employer in the Prairie State, having an in-depth understanding of the Illinois minimum wage and other wage laws governing employee compensation is crucial for fostering a compliant and equitable workplace. What’s more, navigating the intricacies of these regulations is not only a legal requirement – it can also be a strategic advantage for attracting and retaining top talent.

This comprehensive guide explores everything you need to know about the Illinois minimum wage, overtime pay, wage deductions, and other wage-related regulations, providing a clear understanding of employer responsibilities and employee rights. By adhering to the best practices outlined in this guide, you can foster a positive work environment, maintain a reputation for ethical labor practices, and minimize the risk of legal disputes.

• How Does the US Minimum Wage Work?
• Illinois Minimum Wage: Timeline
• Illinois Minimum Wage Rates 2023
• Exemptions & Special Cases
• Compliance and Enforcement: Illinois Minimum Wage
• Additional Illinois Wage Laws
• Best Practices to Ensure Compliance
• Manage Payroll With Factorial to Ensure Illinois Wage Law Compliance
• The Payroll Management Software That Gets You✅

How Does the US Minimum Wage Work?

The United States minimum wage system is a complex one, with various tiers and exemptions that can make it difficult for employers to understand. At its core, the minimum wage is the lowest hourly wage that employers are legally allowed to pay their employees. While the federal minimum wage, set by the Fair Labor Standards Act (FLSA), stands at $7.25 per hour, many states and localities have established their own minimum wage rates, often exceeding the federal standard.

This tiered system creates a patchwork of minimum wage rates across the country, with some areas significantly higher than others. For instance, Washington D.C. boasts the highest minimum wage at $16.50 per hour, while other states like Texas maintain the federal minimum of $7.25.

It’s also important to note that the minimum wage within states can vary, with some municipalities or cities setting their own rates that exceed the state minimum to reflect the unique economic circumstances of their local communities. For example, the minimum wage in Chicago is $15.80 per hour, and the minimum wage in Aurora is $13.25 per hour. Both these rates are higher than the Illinois state minimum wage which currently stands at $13 per hour.

Ultimately, this complexity can make it challenging for employers to navigate the minimum wage landscape. As a result, employers need to be aware of the applicable minimum wage in their jurisdiction, whether it’s the federal minimum, the state minimum, or a municipal minimum. Illinois employers should also understand the exemptions that apply to certain jobs and situations. More on this below.

Illinois Minimum Wage: Timeline

The Illinois minimum wage has undergone several changes throughout history, reflecting evolving economic conditions and shifting societal values.

Here’s a brief timeline of key milestones:

• 1938: The FLSA establishes a minimum wage of 25 cents per hour. Illinois adopts this federal standard.
• 1961: Illinois enacts its first state minimum wage, setting it at $1.25 per hour. This exceeds the federal minimum of $1.15.
• 1967: Illinois raises its minimum wage to $1.45 per hour. This Illinois minimum wage increase exceeds the federal rate of $1.40.
• 1974: Illinois implements a series of automatic minimum wage increases linked to the Consumer Price Index (CPI), adjusting wages for inflation.
• 1977: Illinois abolishes the automatic CPI-linking mechanism and sets a fixed minimum wage of $2.20 per hour, despite the federal minimum rising to $2.30.
• 1980: Illinois introduces a tiered minimum wage system, with lower rates for tipped employees and younger workers.
• 1990s: Illinois gradually increases its minimum wage, reaching $4.25 per hour in 1998. The federal minimum remains at $5.15.
• 2007: Illinois phases in a series of minimum wage increases, reaching $8 per hour in 2010. This surpasses the federal minimum of $7.25.
• 2017: Illinois approves the “Fight for $15” initiative and the state commits to gradually raising the minimum wage to $15 per hour by 2025 (with different schedules for Chicago and downstate areas).
• 2023: The minimum wage in Illinois reaches $13 per hour. This rate is scheduled to increase to $14 in 2024 and $15 in 2025.

This timeline reflects Illinois’ commitment to adapting its minimum wage policies to address the changing economic landscape and ensure a fair standard of living for its workers.

Illinois Minimum Wage Rates 2023

So, what is the minimum wage in Illinois right now? And is the minimum wage going up in Illinois next year?

Effective January 1, 2023, Illinois ushered in a notable increase in its minimum wage, reflecting the state’s commitment to ensuring fair compensation for its workers. For non-tipped employees, the minimum wage jumped to $13 per hour, marking a $1 hike from the previous rate of $12 per hour.

In recognition of the additional income that tipped workers often receive through gratuities, Illinois maintains a separate minimum wage for this category of employees. As of January 1, 2023, the tipped worker minimum wage stands at $7.80 per hour.

The distinction between tipped and non-tipped workers reflects the different nature of their respective occupations. Tipped workers, such as servers, bartenders, and hairstylists, typically earn a portion of their income through customer gratuities. In contrast, non-tipped workers, such as cashiers, retail clerks, and factory workers, rely solely on their hourly wages for their earnings.

Looking ahead, Illinois is poised for further minimum wage increases in the coming years. For 2024, the proposed Illinois minimum wage for non-tipped workers is set to rise to $14 per hour, while the Illinois state minimum wage for tipped workers is projected to reach $8.40 per hour. These increases align with the state’s gradual plan to reach a minimum wage of $15 per hour for all workers by 2025.

The implementation of these minimum wage increases aims to address rising living costs and ensure that Illinois workers earn a fair and livable wage. As the state continues to adapt its minimum wage policies, it remains committed to promoting economic equity and supporting the well-being of its workforce.

Exemptions & Special Cases

While the Illinois minimum wage applies to most employees, there are certain exemptions and special cases that dictate specific wage rates or exclusions from minimum wage requirements.

Here’s an overview of key exemptions and special cases:

• Youth employment. For employees under the age of 18 who have worked less than 650 hours for an employer in a calendar year, the minimum wage is $10.50 per hour. This rate is lower than the standard minimum wage to encourage youth employment and provide flexibility for businesses employing young workers.
• Agricultural workers. Employees engaged in agricultural activities, including harvesting, planting, and tending crops or livestock, are exempt from Illinois minimum wage requirements. This exemption reflects the unique nature of agricultural work and the challenges associated with applying a fixed minimum wage in this sector.
• Car wash employees. Employees of car washes and auto service stations who regularly receive tips are exempt from Illinois minimum wage requirements. This exemption is based on the assumption that these workers earn a significant portion of their income through gratuities.
• Camps. Employees of summer camps and other seasonal recreational establishments are exempt from Illinois minimum wage requirements during the first eight weeks of their employment. This exemption recognizes the temporary nature of summer camp employment and the challenges of applying a fixed minimum wage to seasonal workers.
• Student learners. Student learners, or individuals participating in vocational training programs, may be paid less than the minimum wage under certain conditions. Employers must obtain a special license from the Illinois Department of Labor to employ student learners at a subminimum wage.

It’s important to note that these exemptions may not apply to all employees in the respective categories. Employers should consult with the Illinois Department of Labor for guidance on specific exemptions and special cases.

Compliance and Enforcement: Illinois Minimum Wage

The Illinois Department of Labor (IDOL) is responsible for enforcing the state’s minimum wage laws, ensuring that businesses comply with the FLSA and provide fair compensation to their employees.

The IDOL’s enforcement efforts include:

• Investigations. The IDOL conducts investigations into employee complaints of wage violations. These investigations involve reviewing employer records, interviewing employees and managers, and analyzing payroll data.
• Enforcement actions. If the IDOL determines that an employer has violated the minimum wage laws, it may take enforcement actions such as:
  • Issuing citations and fines
  • Ordering employers to pay back wages to affected employees
  • Seeking injunctions to prevent future violations
• Education and outreach. The IDOL provides education and outreach to employers and employees about the state’s minimum wage laws. This includes offering workshops and training seminars, distributing informational materials, and maintaining a website with resources on wage laws.

Employees who believe that they have been denied the minimum wage can file a complaint with the IDOL. The IDOL will then investigate the complaint. If, after investigating, the IDOL finds that the employer has violated the law, it will take appropriate action.

Additional Illinois Wage Laws

In addition to the Illinois minimum wage, the state has several additional wage laws that employers must comply with. These laws cover a variety of topics, including overtime pay, wage deductions, and tip pooling.

Here’s everything you need to know.

Wage Deductions

Illinois employers can make deductions from an employee’s paycheck under specific circumstances. These deductions must fall into one of the following categories:

• Legal obligations. Deductions for taxes, Social Security, Medicare, and unemployment insurance are mandatory. Employers are legally required to withhold these amounts from employee paychecks and remit them to the appropriate government agencies.
• Employee-authorized deductions. Employees can voluntarily agree to deductions for union dues, health insurance premiums, retirement contributions, and other similar expenses. These deductions require written authorization from the employee, clearly specifying the amount and purpose of the deduction.
• Voluntary deductions. Employees can also authorize deductions for charitable contributions or payroll loans. Similar to employee-authorized deductions, voluntary deductions require written consent from the employee, outlining the details of the deduction.

Above all, remember that employers can’t just take money out of employee paychecks without their permission (with the exception of legal obligations). They must explain why they’re making the deduction and give employees the option to say no. And they have to keep track of all the money they deduct from an employee’s paycheck.

Tip Pooling

Tip pooling is a practice where employers allow employees to share their tips with each other. In Illinois, tip pooling is legal as long as the employer does not take a portion of the tips and all employees are paid at least the minimum wage. Tip pooling can be a fair way to distribute tips among employees, as it ensures that all employees share in the gratuities, regardless of their individual sales or service performance.

However, it’s important to note that tip-pooling arrangements must be implemented fairly and transparently. Employers should clearly communicate the tip pooling policy to all employees and ensure that the distribution of tips is equitable. Employees should have a say in how the tips are distributed and should be able to raise concerns if they feel that the process is unfair.

Equal Pay

The Illinois Equal Pay Act (IEPA), based on the federal Equal Pay Act, prohibits employers from discriminating against employees based on sex by paying them less for equal work. This means that employers must pay men and women the same wage for performing the same or substantially similar work under the same conditions. The IEPA applies to all employers in the state, regardless of their size or industry. The ultimate aim is to promote pay parity and pay transparency.

However, there are a few exceptions to the IEPA’s equal pay requirement. For example, employers are not required to offer equal pay if the difference in wages is based on a bona fide factor other than sex, such as seniority, merit, or the quantity or quality of work performed. However, employers cannot use these factors as a pretext for paying women less than men.

If an employee believes that they have been discriminated against in violation of the IEPA, they can file a complaint with the Illinois Department of Labor (IDOL). The IDOL will investigate the complaint and, if it finds that the employer has violated the law, will take action to enforce it.

Wage Payment and Collection Act

The Illinois Wage Payment and Collection Act (WPC) guarantees the timely and full payment of wages to employees in Illinois. It applies to all employers in the state, regardless of their size or industry.

The WPC requires employers to pay their employees at least the minimum wage for all hours worked. Employers must also provide employees with accurate pay stubs that detail their earnings, deductions, and net pay.

Overtime Pay

In addition to the above, according to the WPC, employers must compensate non-exempt employees who work more than 40 hours in a workweek at a rate of 1.5 times their regular hourly wage. This overtime pay requirement applies to all hours worked beyond the 40-hour threshold, regardless of whether the overtime occurs on weekdays, weekends, or holidays.

Moreover employers are responsible for accurately tracking employee hours worked and ensuring that overtime pay is paid correctly. Failure to comply with these overtime pay requirements can result in significant penalties, including back wages, fines, and potential legal action.

Wage Theft Act

Finally, the Illinois Wage Theft Act (WTA) criminalizes the withholding of wages from employees. The WTA was enacted to protect workers from unscrupulous employers who intentionally deprive them of their hard-earned earnings.

The WTA defines wage theft as the intentional failure to pay an employee wages or other compensation to which they are entitled. This can include unpaid minimum wages, overtime pay, commissions, or bonuses. Wage theft can also encompass the unlawful withholding of tips or the manipulation of time records to reduce an employee’s pay.

Under the WTA, employers who engage in wage theft can face significant penalties. This includes fines, imprisonment, and even civil lawsuits filed by affected employees. The law also establishes a Wage Theft Enforcement Fund. This fund provides compensation to victims of wage theft who are unable to recover their stolen wages from their employers.

Best Practices to Ensure Compliance

Employers can maintain compliance with Illinois wage laws by implementing the following best practices:

• Firstly, make sure you have a thorough understanding of the Illinois minimum wage rates that apply to your industry. You should also familiarize yourself with any relevant exemptions. In addition, make sure you keep up to date with any changes to the Illinois Wage Payment and Collection Act (WPC) and the Illinois Minimum Wage Law (MLW).
• Secondly, maintain accurate records of employee hours worked, pay rates, and earnings. You must keep these records for at least two years.
• Thirdly, make sure you pay employees on time and in full. This includes overtime pay and any applicable bonuses or commissions.
• In addition, ensure that you provide employees with accurate and regular pay stubs. These pay stubs must include the employee’s name, pay rate, hours worked, earnings, and deductions.
• Moreover, train managers and supervisors on Illinois wage laws to ensure that they are complying with the law and can answer employee questions.
• Finally, use the right technology to automate and streamline your payroll processes. Payroll software, for example, can provide numerous benefits. These benefits include automated calculations, centralized data management, real-time compliance monitoring, and access to regulatory updates.

Manage Payroll With Factorial to Ensure Illinois Wage Law Compliance

Managing payroll with Factorial can significantly streamline your operations, ensure compliance with Illinois minimum wage laws, and boost employee satisfaction.

Here’s how Factorial’s payroll software can help you achieve this:

• Accurate payroll calculations. Factorial automatically calculates minimum wage, and overtime pay, ensuring that your employees are paid correctly and on time. It also handles complex payroll scenarios, including pay raises, different pay periods, and holiday pay (paid and unpaid time off, including Illinois state holidays). This eliminates the need for manual calculations and reduces the risk of errors.
• Compliance with Illinois wage laws. Factorial’s built-in knowledge base ensures that you stay up to date with the latest Illinois wage laws, including minimum wage increases, overtime pay regulations, and tip pooling guidelines.
• Streamlined payroll processing. Factorial simplifies payroll processing by automating tasks like pay stub generation, tax calculations, and tax filing.
• Employee on-demand pay. Factorial’s on-demand pay feature enables employees to access their earned wages before the traditional pay period ends. This provides them with greater financial flexibility.
• Robust payroll security. Factorial prioritizes data security, employing measures like encryption, access controls, and fraud prevention tools to safeguard your payroll data.
• Seamless integrations. Factorial integrates seamlessly with various third-party systems, including QuickBooks, creating a unified workflow.
• User-friendly interface. Factorial’s intuitive interface makes it easy to navigate and manage payroll tasks, even for users with limited technical expertise.
• Mobile payroll access. Finally, Factorial’s mobile app allows you to manage payroll from anywhere, anytime. That way, you can stay on top of payroll deadlines, even when on the go.

Ultimately, by automating and streamlining your processes in this way, Factorial provides you with the peace of mind that your payroll is in good hands and that you are in compliance with all Illinois minimum wage requirements.