Senate Bill 1 – a New Minimum Wage and Heightened Wage Violation Penalties

On February 20, 2019, Governor J.B. Pritzker signed Senate Bill 1, which amends the Illinois Minimum Wage Law (IMWL) to raise the minimum wage to $9.25 on January 1, 2020, and then to $10.00 on July 1, 2020, and by an additional $1.00 each year thereafter until it reaches $15.00 per hour on January 1, 2025.

Although much of the public’s attention is on the wage increase, employers also should pay attention to the bill’s significant increase in potential liability for wage and overtime violations and its new penalties for recordkeeping failures.  This is particularly noteworthy because, while the wage increases do not begin until 2020, the bill itself, and its new penalties and liabilities, is effective immediately.

Before Senate Bill 1, any employee who sued to recover underpaid wages or overtime under the IMWL was entitled to recover the amount underpaid plus a statutory penalty of 2% of the amount underpaid per month of underpayment.  Now, an employee will be entitled to recover three times the amount underpaid plus an increased statutory penalty of 5% of the amount underpaid per month of underpayment.  If an underpayment is determined to be willful, repeated, or reckless, the employer also may be required to pay a penalty to the Illinois Department of Labor (IDOL) equal to 20% of the total amount underpaid as well as a newly added $1,500 fine.

These substantial increases to an employer’s potential liability are likely to encourage plaintiffs’ attorneys to pursue much smaller underpayment claims and make it more difficult for employers to settle such claims.  This could be a significant concern for any employers with poorly maintained or incomplete timekeeping records, as courts give wide deference to plaintiff employees in the absence of clear records contradicting an employee’s claims.

In addition to heightened liability for wage underpayments, Senate Bill 1 adds teeth to the law’s longstanding but sometimes loosely observed recordkeeping provisions.  Under the bill, employers that fail to adhere to Illinois’ recordkeeping rules are subject to a $100 penalty “per impacted employee.”  Unfortunately, “impacted employee” is not defined, so employers will be left to wonder exactly how the new penalties will be calculated unless clarifying guidance is published, or until IDOL prosecutes the first such case.  The bill also adds a provision authorizing IDOL to “make random audits of employers … to determine compliance.”

This new penalty applies to Illinois’ existing recordkeeping rules that require every employer to record “the hours worked in each day and in each work week by each employee.”  IDOL regulations expressly require employers to keep such records for all employees, “regardless of an employee’s status as either an exempt administrative employee, executive, or professional.”

Given inherent difficulties in consistently tracking the work hours of various salaried positions with flexible schedules, these recordkeeping rules had been considered impractical for many types of employees.  The creation of a clear penalty and auditing scheme, though, may force further consideration of the issue.  A school without sufficiently comprehensive records of each administrator and teacher’s daily workhours, for example, could now face fines from IDOL.

With Senate Bill 1 signed into law, employers should consider: (1) reviewing wages to ensure compliance with the new wage rates when they go into effect on January 1, 2020, and again on July 1, 2020; (2) the long-term impact of new wage rates at bargaining tables and on existing compensation schedules; (3) creating an effective system for recording the daily work hours of every employee, including exempt employees, if one is not already in place; and (4) conferring with your legal counsel to determine whether a comprehensive review of your wage and hour practices would be appropriate.

Contact Barb Erickson or Robert Hill with your minimum wage inquiries.