Executive Summary: In March 2023, the Illinois Legislature enacted the Paid Leave for All Workers Act (PLAW Act), which becomes effective January 1, 2024. This law requires, with a few exceptions, “an employee who works in Illinois” to be eligible to earn “up to a minimum 40 hours of paid leave” in a 12-month period. The paid leave can be used for “any reason.” In November 2023, the Illinois Department of Labor (“IDOL”) released its Proposed Rules for the PLAW Act, which as of publication of this Alert, have not yet been passed.
As discussed below, in some cases, there are still several aspects of this law that remain subject to differing interpretations and/or appear to be inconsistent with other laws. Other aspects require warnings to the unwary employer. For now, despite the inconsistencies, employers must still implement the PLAW Act requirements on or before January 1, 2024. Perhaps the most significant proposed rule, which employers should act on immediately, would allow employers to keep existing policies intact, without any changes, as long as the policy provides at least 40 hours of paid leave that can be used for any reason.
We also note that some municipalities have been scrambling to try and enact a paid leave law before the Illinois law goes into effect on January 1, 2024. We will update again after January 1 with a list of municipalities that have enacted their own paid leave laws.
General Rules and Definitions
The new proposed rules have added several definitions, including definitions of “accrual,” “complaint,” “domestic worker,” and “domicile.” Most consequential are the definitions of “employee,” “employer,” and “independent contractor.” One of the most important questions for many employers is whether their workers are “independent contractors” who would not be subject to the Act. The proposed rules aim to answer that question, defining an independent contractor as one “who has been free from control and direction over the performance of the individual’s work…and performs work that is either outside the usual course of business or is performed outside all of the employer’s places of business, [except for employment placement agencies], and is in an independent established trade, occupation, profession, or business.”
Additionally, employers have asked whether an employee who commutes from a neighboring state falls under this law. The IDOL has attempted to answer this question, by defining “employee” as someone who is “permitted to work by an ‘employer’ whose base of operations, regional office, or headquarters is in Illinois and that employee’s work is primarily performed in Illinois.” This also applies to employees who are domiciled in Illinois and whose work is primarily performed in Illinois. The IDOL has also included “domestic workers” within the definition of “employee.” This includes anyone, including an independent contractor, that performs “domestic work” more than 8 hours per workweek (such as nannies, housekeepers, caregivers, drivers, etc.).
Earning Paid Leave – Beware of Frontloading Calculations in First Benefit Year
The new law requires employers to provide a minimum of 40 hours of paid leave during a 12-month benefit period, or a prorated number of hours for proportionally smaller periods of time, with an important warning discussed below. The employer may allow employees to accrue time as they work or frontload the time at the beginning of the benefit period. Employers may choose the benefit period (i.e. anniversary, calendar year, fiscal year) and must continue using that period unless they give adequate notice of a change. (Employers can make employees wait 90 days before allowing them to take PLAW leave, whether frontloaded or accrued.)
Accrual
Accrual Increments: Employers using the accrual method must allow employees to accrue at least 1 hour of paid leave for every 40 hours worked and can cap the total accrual of hours at 40 per year. The IDOL’s proposed rules provide that employers may allow accruals in any increments of time, so long as the employees accrue at least 1 hour of paid time for every 40 hours worked. This means that if an employer allows employees to accrue .25 hours of paid time for every 10 hours worked, the IDOL would find that accrual lawful. Even though an employer can accrue time for an employee in less than 40-hour increments, employers may not accrue in greater than 40-hour increments and must minimally accrue 1 hour for every 40 hours worked. For instance, an employer cannot wait to accrue 2 hours for an employee when the employee works 80 hours, even though the total is the same.
In addition, it may take an employee who is working more than an 8-hour day less than a week to earn an hour of PLAW leave, as overtime hours are included in the 40 worked. Thus, employers who pay every 2 weeks or twice a month may need to reconfigure their payroll system to account for this requirement. Accrual must begin on the first day of employment; however, employers can make employees wait 90 days to begin using the accrued time. The IDOL has also clarified that if the employee is on paid or unpaid leave, the hours do not count towards accrual.
Part-Time Employees: Employers must also provide paid leave to part-time employees. The easiest and most accurate way to do so is to have the part-time employee accrue as they work and carryover unused leave. However, it is possible to frontload for part-time employees, which is discussed in the next section.
Carryover: Employers who use the accrual method also must allow employees to carry over unused PLAW leave to the next year. PLAW leave banks can be capped at 80 hours, and employers can still limit the total use of PLAW leave in a year to 40 hours.
Frontloading
The PLAW proposed rules also discuss the concept of frontloading, which would be a substitute for the accrual method. Frontloading allows employers to provide employees with 40 hours at the beginning of each 12-month benefit period, including upon hire. Unless using an anniversary to calculate a benefit year, most employees will not begin employment on the first day of a benefit year (i.e. January 1 or the first day of the employer’s fiscal year.) Employers may also therefore prorate frontloaded time from the time of hire until the end of the calendar year.
Proper Proration of Time: Importantly, however, although the proposed Regulation vaguely mentions prorating frontloaded hours for a partial benefit year, the law itself states that in no event shall an employee be credited with less hours than would be earned through the accrual method. Therefore, it is essential for employers to calculate properly when frontloading in the first partial year. For instance, if an employee is expected to work 40 hours per week, then if hired any time prior to March 30 (which is 12 weeks into the year), the employee should be frontloaded the entire 40 hours since the employee would have been able to accrue that amount through hours worked. If an employee begins work after March 30, then the employer should calculate a pro rata amount for the remainder of the year but must remain cognizant of increasing the calculation if the employee is expected to work overtime. If the employee ends up working more hours than originally anticipated, the employer must credit the employee with more paid leave as soon as can be calculated. The employer may not, however, reduce the frontloaded paid leave if it turns out the employer overestimated the number of hours the employee would work.
Employers can also frontload part-time employees’ PLAW leave rather than accruing by estimating based on the employee’s anticipated work schedule for the 12-month period. However, employers must still continually check to make sure that part-time employees are not working more than originally estimated and, if they are, employers must increase paid leave to make sure the employees are receiving at least 1 hour for every 40 hours worked. Employers may not recoup unpaid leave frontloaded due to over-estimating. Therefore, for part-time employees, it may be better for employers to use the accrual method rather than frontloading because then there should never be over- or under-estimates.
For employers who keep PLAW leave separate from other types of leave, the frontloading method can be advantageous because not only does the unused time not need to be paid out on termination, but it is also easier to track during the year, without having to deal with carrying over and calculating when the PLAW bank has reached 80 hours and accrual needs to pause until some leave is used. (Below, we will discuss additional benefits of separating out the leave from other types of leave.) At the start of employment, employers should provide employees with written notice of the company’s PLAW leave policy, including whether the hours will be accrued or frontloaded.
Preexisting Paid Leave Policies
Proposed Rule 200.200(b) would allow employers who have a preexisting written paid leave policy as of January 1, 2024 to keep the same policy, as long as it conforms with the Act by providing minimally 40 hours of paid leave that can be used for any reason. This would allow employers to limit the amount of organization and practical changes they would face with implementing these new requirements. Also, based on the language of the proposed rule, assuming it passes, if a preexisting policy already contained different restrictions than allowed under the law, presumably employers will be able to keep these restrictions. This could include the ability to require employees to provide a reason for taking leave when requested without notice, requiring more than 7 days’ notice when the leave is foreseeable, and taking leave in increments greater than 2 hours, all of which are not allowed under the law. This could help employers limit abuse such as having employees frequently call off at the last minute and leaving the employer short-handed. It is entirely possible, however, that this Regulation may not pass or may be amended before becoming official to clarify that all existing policies must also comply with all other requirements and prohibitions under the PLAW Act.
Use and Possible Denial of PLAW Leave
Despite being required to allow employees to take paid leave for any reason and without documentation, if an employer maintains a written paid leave policy, it may impose certain terms and conditions of the use of paid leave. These include requiring prior “reasonable” notice (defined as no more than 7 days), making the employee request the time off, or even denying the time off, so long as such considerations are disclosed in writing.
The proposed Rules contemplate that an employer may deny a request in order to meet the employer’s “core operational needs” for the requested time period. In considering whether the request may be denied due to operational needs, relevant factors include: 1) whether the employer provides a need or service critical to the health, safety, or welfare of the people of Illinois; and 2) whether similarly situated employees are treated the same for the purposes of reviewing, approving, and denying paid leave; and 3) whether granting leave during a particular time period would significantly impact the business operations due to the employer’s size; and 4) whether the employee has adequate opportunity to use all paid leave over the 12-month period. Thus, the standard creates an exceptionally high bar to meet (all of the above factors must be met) and should be used sparingly, and likely only in certain industries, such as health care, or for police or fire services, which are not currently exempted from the PLAW Act
Employees cannot be made to find a replacement for their position. Employees are to be paid their regular rate of pay, unless they work for an employer who takes a tip credit, in an occupation where gratuities are customarily the form of payment, in which case they are to receive their annualized rate of pay counting their tips.
Employers cannot retaliate against employees for using PLAW leave. More importantly, employers cannot penalize or discipline employees under an attendance point system or equivalent attendance scoring or tracking system when employees exercise their rights under the PLAW Act.
Benefits of Separating PLAW Leave from Other Types of Leave – Control Over Absences
In many instances, it will now be more advantageous for employers to keep their bank of PLAW leave separate from other types of leave, despite the potential difficulty in tracking multiple banks. In addition to not having to pay out unused PLAW leave upon termination of employment if kept separate from other forms of leave, it also limits the potential abuse that employers may endure. For instance, with the inability to require employees to provide a reason for the leave, including a last-minute leave, employers will not be able to determine whether the request for PLAW leave was foreseeable and the employee could have and should have provided more notice, which would allow the employer to find coverage for the absent employee. This also means that employees who were previously denied a request for leave on a particular day (perhaps due to coverage issues) can simply take the day off anyway and call it PLAW leave and be protected from retaliation. In addition, employers may not penalize employees under an attendance scoring or tracking system when an employee utilizes PLAW leave, opening the door to significant abuse and inability to properly staff the business.
These portions of the law restricting notice, prohibiting requiring a reason for the leave, and prohibiting discipline under attendance policies, can be considered a “get out of jail free” card of sorts. Therefore, employers who are worried about this potential abuse and being left unable to run aspects of the business may wish to separate out PLAW leave from other forms of leave to limit the abuse to only up to 40 hours during the year. Otherwise, if the leave is combined, this potential abuse could occur on all of the hours of leave to which employees are entitled. If employees have enough hours of combined leave, they can entirely skirt the employer’s reasonable absence-control policies. Employers who choose to keep separate banks of leave must allow employees the ability to choose from which bank they wish to take leave.
Recordkeeping, Accounting, and Posting
Employers must keep records for at least 3 years that include for each employee: 1) name and address; 2) hours worked each day in a workweek; 3) paid leave earned or accrued in each workweek; 4) paid leave taken or used in each workweek; 5) requests by the employee to use paid leave that the employer denied; and 6) remaining paid leave balance in each workweek and upon employee’s separation or termination from employment.
Employers are also required to provide an accounting balance of all paid leave time on each paystub and upon request from the employee.
Employers are required to post notices regarding the PLAW Act in a conspicuous location on their premises where notices to employees are customarily posted. (In a separate new law, employers with remote employees can email such notices, or make them available on a company intranet system.) A compliant notice will eventually be available at no charge on the Illinois Department of Labor’s website. If a “significant” percentage (not defined) of the workers are not literate in English, the employer must also provide the notice in the languages commonly spoken in the workplace. A violation of the notice requirements will result in a $500 fine for the first violation and $1,000 for any subsequent violation.
Collective Bargaining Agreements
For employees covered by collective bargaining agreements (CBAs), any agreements in place on January 1, 2024 remain in effect and are not affected by the PLAW Act. However, any new agreements will need to ensure that the Act is followed, unless expressly waived within the agreement using clear and unambiguous waiver language. This provision related to CBAs does not apply to employers/employees who are in the construction industry or who provide services nationally and internationally of delivery, pickup, and transportation of parcels, documents, and freight and are covered by bona fide CBAs.
Chicago and Cook County Employees
Employers who are in a municipality that has an existing paid leave law, like Chicago and some Cook County municipalities, are exempt from the PLAW Act. Both Chicago and Cook County have recently amended their paid leave ordinances, and summaries of each can be found here for Chicago and here for Cook County. Cook County’s Ordinance goes into effect on January 1, 2024, while Chicago’s was delayed to July 1, 2024. We have also prepared an additional summary of all three paid leave laws for comparison. Note that under the Chicago Ordinance, employers located outside of Chicago but who have employees who perform 80 hours of work in any 120-day period in Chicago (such as salespersons, delivery drivers, and repair persons), must provide paid leave to those employees for the hours they work in Chicago (1 hour of Paid Leave and 1 hour of Paid Sick Leave for every 35 hours worked in Chicago).