Hiring a new employee is both an exciting and frightening experience. On the one hand, you are finally filling that empty seat in your office. On the other hand, you are responsible for another person's livelihood while balancing the cash flow needs of your business. Not to mention all the paperwork you have to deal with and labor laws you must comply with. No pressure!
Before hiring a new employee or independent contractor, you need to be aware of some important legal considerations and requirements for employers in Illinois, including state and federal laws concerning taxes, payroll, and legal compliance.
Not knowing the law is not an excuse for breaking it, so it is in your best interest to educate yourself and avoid fines or penalties. This guide will walk you through the basics of hiring and onboarding employees in Illinois and help you understand what is required of you as an employer.
- Register as an employer with the State of Illinois
- Obtain workers' compensation insurance
- Enroll in unemployment insurance
- Hiring employees
- Onboard the new employee
- New hire reporting requirements
- Set up payroll
- Calculate payroll
- Document and store payroll records
Register as an employer with the State of Illinois
If you have not already done so, you must first register as an employer with the State of Illinois. To do so, you must complete the Employer's Business Registration Form and submit the registration fee. To register a corporation, you must pay a $150 filing fee. For a limited liability partnership, each partner must pay $100, with a minimum fee of $200. Additionally, you are responsible for paying an annual franchise tax (a minimum of $25), along with your annual reporting fee of $75. You can check the Illinois Department of Business Services for more information on filing fees.
You can register as an employer online, by mail, or in person. As usual, online registration is the quickest and most convenient option. To register online, simply go to the Illinois Department of Revenue website and create an account. Once you have created an account, you can log in and complete the Employer's Business Registration Form.
Keep in mind that you will need to provide some basic information about your business, such as your company, name, address, and type. Don't forget to save your username and password, as your registration needs to be renewed yearly.
If your business is already up and running, it is safe to assume you are already registered as an employer; therefore, you can skip to the next section. If not, your next step is to get an Employer Identification Number (EIN) from the IRS. To learn more about setting up your business, EIN, and how to obtain it, visit our Illinois Payroll Tax Guide.
Obtain workers' compensation insurance
In Illinois, employers are required to have workers' compensation insurance. This insurance protects employees in the event of workplace injuries. You can obtain workers' compensation insurance through a private insurance company or the Illinois Workers' Compensation Commission.
If you choose to go through a private insurance company, we advise you to shop around for the best rates and coverage. Make sure to get quotes from multiple companies before making a decision.
If you choose to go through the Illinois Workers' Compensation Commission, you will need to fill out an application and pay a fee. You can find more information on their website.
CAVU’s workers’ compensation services can help you eliminate down payments for workers’ compensation insurance and reduces the likelihood that audits will show you owe additional funds at the end of your policy date. To learn more about it, visit our payroll solutions page.
Enroll in unemployment insurance
As an employer in Illinois, you are also required to enroll in unemployment insurance. This insurance provides benefits to employees who lose their job through no fault of their own.
To enroll in unemployment insurance, you will need to complete an application and pay a fee. You can learn more about it by visiting the Illinois Department of Employment Security website.
Now that you are finally registered as an employer and have all the necessary insurance, it is time to start the hiring process. To avoid potential problems, there are some things you should keep in mind.
Check if the employee is eligible to work in the United States
The first step is ensuring the employee is eligible to work in the United States. You can do this by asking if they own a United States passport, Green Card, or other immigration documents.
If the employee is not a citizen or permanent resident of the United States, you can still hire them, but you will need to obtain a work visa. Check out the U.S. Citizenship and Immigration Services website for more information on work visas.
Comply with the Illinois Equal Pay Act
The next step is to ensure you comply with the Illinois Equal Pay Act.
This act prohibits employers from paying employees of different genders differently for doing the same job. To ensure you abide by the Illinois Equal Pay Act, you must pay all employees the same hourly rate for working at the same position, regardless of gender.
Get a criminal background check
We are sure you have done a great job of screening candidates, but running a criminal background check is always a good idea. This will help you ensure your future employee doesn't have any red flags in their past.
While you can choose to skip this step, we recommend you get a criminal background check for all new employees.
To do so, you will need to obtain a release form from the applicant. This form will permit you to conduct a background check. Then, you can either use an online service or contact the Illinois State Police. Once you have received the background check results (and you are satisfied with them), you can extend a written job offer to your new team member.
Onboard the new employee
After the new employee has accepted your job offer, it is time to welcome them to the team. The onboarding process can seem daunting, but we are here to help! So, let's break it down into a few steps:
- Give the employee their new hire paperwork
- Collect tax information and necessary forms
- Provide the employee with company policies
- Set up payroll
The first step is to give the employee their employment contract and new hire paperwork. This paperwork includes the job description, salary, and employee benefits. All newly hired employees must read and understand this paperwork before they actually start the job.
Next, you will need to collect tax information. This includes the employee's Social Security number and W-4 form. The W-4 form (Employee's Withholding Allowance Certificate) calculates the amount of taxes that will be withheld from an employee's paycheck.
The withholding allowances claimed on the form determine how much tax will be withheld.
The more federal income tax withholding allowances an employee claims, the less tax will be withheld from their paycheck and vice versa. Employees can claim either "0" or "1" withholding allowances if they want the maximum amount of taxes withheld from their paycheck. They can also claim "exempt" status on the W-4 form if they do not wish any taxes withheld from their paycheck.
You will also need to provide the employee with a few other forms, such as an I-9 form, a direct deposit form, an IL-W-4 form, and a policy manual. The I-9 form is an employment eligibility verification used to verify that your employee is legally allowed to work in the United States. The direct deposit form will allow you to deposit the employee's paycheck into their bank account. The policy manual will outline your company's policies and procedures.
New hire reporting requirements
Effective October 1, 1998, state and federal laws require all employers to report each new and rehired employee to a State Directory of New Hires. The New Hire Reporting Program is part of the federal welfare reform law and now includes increased efforts to locate absent parents who are not supporting their children.
Congress and the states adopted these laws to increase child support collections on both state and national levels and reduce fraudulent unemployment and worker's compensation payments. The federal Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) requires all employers to report newly hired and rehired employees to their state's Directory of New Hires.
When reporting a new hire, you must provide:
- Employee name, address, and social security number
- Employer name, address, and federal employer identification number (FEIN)
- Date of hire
If an employee is under 18, you will also need to provide their date of birth.
You will need to report this information within 20 days of the employee's start date, using one of the following methods:
- Completing and submitting the New Hire Reporting form provided by the Illinois Department of Employment Security (via first-class mail or fax)
- Submitting copies of the employee's W-4 form, with all information completed legibly, including the employer information
- Submitting a separate listing of new employees with the required data
- Registered employers can log in to complete the online New Hire Reporting Web form or upload a file, or
- You can choose to submit New Hires using a secure file transfer protocol (sFTP). To use this procedure, you will have to request login credentials and receive the specified file layout for this submission method.
Set up payroll
Now that you have all the necessary forms and information from your new hire, it is time to set up payroll.
To do this, you will need to provide your employee's information to your payroll provider. This includes their Social Security number, bank account information (if you're using direct deposit), and start date. Finally, you will need to withhold taxes from the employee's paycheck.
The amount of taxes you withhold will depend on the information provided on the W-4 form. Federal income tax, Social Security tax, Illinois State Income tax, and Medicare taxes will be withheld from the employee's paycheck. The amount of each tax will depend on the employee's salary and withholding allowances.
Once that is done, you will need to choose how often you will be paying your employee. The most common options are weekly, bi-weekly, semi-monthly, or monthly. For hourly and salary non-exempt employees, you are also required to collect, review, and approve timesheets.
To finally pay your new employee, you have to calculate their payroll. To do so, you will need to:
- Gather timesheets
- Calculate hours worked
- Calculate gross pay
- Determine deductions
- Calculate net pay
- Distribute checks or direct deposits
The first step is to gather all of the employee timesheets. If you are using an electronic system, you may be able to export the data into a spreadsheet. If you are using paper timesheets, you will need to enter the data into a spreadsheet manually.
Once you have all of the timesheets, you can calculate the total time worked for the period for each employee. The exact process will depend on whether an employee is salaried or paid hourly, as well as if they are non-exempt or exempt. Check out our detailed Illinois Payroll Tax Guide to learn more about this.
After calculating the hours worked, you will need to calculate the gross pay. Gross pay is the total amount of money an employee has earned before deductions are taken out. To sum it up for hourly employees, multiply the number of hours worked by the hourly rate. For salary employees, gross pay is simply the salary amount.
Next, you will need to determine what deductions need to be taken out. The most common deductions are federal and state income taxes, Social Security, and Medicare. There may also be others, such as health insurance or retirement plans.
After that, you can calculate the net pay. Net pay is the employee's gross pay minus all deductions. This amount of money will be distributed to the employee via check or direct deposit.
Finally, you will need to distribute the checks or deposits. If you are using direct deposit, you will simply need to provide the employee's bank account information to your payroll provider. If you are using paper checks, you will need to print them and distribute them to the employees.
Document and store payroll records
In addition to paying your employees, you are required to keep accurate records of your company's payroll. You will need to keep records of each employee's:
- Social Security number
- Federal and state income tax withholdings
- Social Security and Medicare tax withholdings
- Any other deductions, such as health insurance or retirement plans.
- Hours worked
- Gross pay
- Net pay
You will also need to keep records of your company's payroll taxes. This includes federal and state income tax, Social Security tax, and Medicare tax.
By January 31st of each year, you are required to issue to employees and file W-2s for the previous year. For employees, you should use W-2 forms, and for contractors, 1099 forms. W-2s for each employee show essential information, including annual earnings, taxes withheld, and other information the employee needs to file their state and federal income tax returns.
In Illinois, you are required to keep payroll records for at least four years. These records can be stored electronically or in paper form. The best way to store them is to use a payroll software system. This will allow you to easily access the records and generate reports as needed.
There you have it! Those are the basics of hiring and onboarding employees in Illinois from a tax, payroll, and legal standpoint. By following these steps, you can ensure that your business complies with all state and federal laws.
Labor laws change from time to time, so it's important to stay up-to-date as these changes may impact your businesses. Combining software and concierge services, CAVU's solution streamlines the hiring and payroll processes.
Led by experts on all local, state, and federal policies and regulations, CAVU can help you manage every part of your operation, including talent management, payroll, tax credits, and more.
By outsourcing your payroll and HR needs to CAVU, you can reduce and simplify your involvement in payroll administration and execution and streamline the way you evaluate, hire, onboard, and manage employees.
Additionally, CAVU HCM provides its clients with direct access to federal and state laws regarding hiring, wages, paid and unpaid time off, medical leave, and more.
To learn more about CAVU HCM, click here.