Are you hiring your first employee in the state of Illinois? If so, we’ve got you covered with our comprehensive hiring guide. Check out these six practical steps to hiring employees in Illinois:
Step 1: Take care of logistics
Before you can hire an employee in Illinois, it’s critical to register your business with the right government departments and gather the necessary paperwork. Add these items to your to-do list if you haven’t already:
Apply for an employer identification number (EIN) on the IRS website
If you’re registered as a partnership, multi-member limited liability company (LLC), C corporation, or S corporation, you likely already have an EIN, also known as your federal tax ID. However, if you run a sole proprietorship or single-member LLC and haven’t yet obtained an EIN, you need to get one before hiring employees.
You can apply for an EIN on the IRS website by completing an application.
Register with the Illinois Department of Revenue
Next, register your business entity with the Illinois Department of Revenue (IDOR) to pay state withholding taxes. Once you’ve registered and completed some basic information, you’ll receive a taxpayer ID number. Get started using MyTax Illinois.
Register with the Illinois Department of Employment Security
To hire employees in Illinois, you also need to register with the Illinois Department of Employment Security (IDES). The Illinois Unemployment Insurance Act requires most for-profit employers to make unemployment insurance contributions as soon as they have:
- Paid $1,500 in wages in a single calendar quarter, or employed one or more people for 20 weeks in a given calendar year; or
- Paid $1,000 in cash wages in one calendar quarter for domestic work; or
- Paid $20,000 in cash wages in one calendar quarter or employed 10 or more workers for 20 weeks in a given calendar year for farm work.
Get workers’ compensation insurance
The Illinois Workers’ Compensation Commission requires all employers with one or more employees to obtain workers’ compensation insurance. Workers’ compensation coverage protects you from financial losses and lawsuits as an employer while giving your employees medical and wage-loss benefits in the event of an illness or injury.
You can get workers’ compensation in Illinois by applying to become self-insured. However, the more common option is to purchase insurance through a private carrier. The Illinois Department of Insurance (IDI) releases a market share report every year that breaks down the different insurance carriers in the state. See the 2023 report and read these FAQs for helpful guidelines.
Step 2: Understand your hiring costs and tax liability
Hiring employees in Illinois is a significant investment, so it’s important to review your finances and create a realistic hiring budget. Keep in mind that on top of Medicare and Social Security taxes, you’ll also pay state withholding taxes and cover general hiring costs.
Hiring costs encompass everything from job site subscriptions to your total employee compensation package, which includes employees’ wages or salaries, health insurance, paid time off, and other beneficial employee benefits.
Here are the hiring and tax costs to know about as a business owner in Illinois:
- Under the Federal Insurance Contributions Act (FICA), the Social Security tax rate is 6.2% for an employer and 6.2% for an employee. The rate for Medicare taxes is 1.45% for an employer and 1.45% for an employee.
- The 2023 annual state unemployment insurance (SUI) tax rate for new employers in Illinois is 3.95% on a wage base of $13,271.
- The Federal Unemployment Tax Act (FUTA) works alongside state unemployment insurance programs. The FUTA tax rate is 6% on the first $7,000 of employee wages. However, if you pay SUI taxes on time and in full, you can get a credit on FUTA taxes of up to 5.4%, potentially dropping your FUTA tax liability to 0.6%.
- When you have employees in Illinois, you have to pay state withholding tax. The Illinois withholding tax rate is 4.95% of net income. Learn more about Illinois withholding amounts and how to calculate them using IDOR’s 2023 withholding booklet.
Do you have enough money to hire an employee in Illinois? Use this calculator to find out.
Step 3: Check Illinois labor laws and employee classifications
Becoming an employer means abiding by employment laws—and staying up to date on key changes. Before you hire a new employee in Illinois, take the time to review both federal and state labor laws.
In addition to minimum wage requirements and overtime laws, consider classification differences between employees and independent contractors, pay transparency laws, and equity laws.
Here are a handful of notable Illinois labor laws from the Illinois Department of Labor (IDOL):
- The minimum wage for Illinois employees is $13/hour for employees 18 years old and up; the minimum wage for employees under 18 is $12.50/hour.
- Non-exempt employees in Illinois who work overtime (more than 40 hours in a week) must be paid overtime pay, which is 1.5 times the regular rate of pay. See more Illinois minimum wage and hourly law FAQs on IDOL’s website.
- The state of Illinois doesn’t require employers to provide paid sick leave, vacation time, or severance—that’s up to the employer. However, under the Illinois Employee Sick Leave Act, employees who receive sick leave from their employers are allowed to use at least a portion of that sick leave to care for certain relatives.
- Illinois’ Family Bereavement Leave Act (FBLA) gives eligible employees up to two weeks of unpaid leave time following: the death of a covered family member, stillbirth, miscarriage, unsuccessful reproductive procedure, failed adoption match or unfinalized adoption agreement, failed surrogacy agreement, or diagnosis that negatively impacts pregnancy or fertility.
- Illinois bans salary history inquiries, which means Illinois employers can’t ask job candidates to provide their wage or salary history as a condition of employment. See which other states have similar salary history laws.
- Illinois is an at-will state, which means Illinois employers are legally allowed to terminate employees without reason or cause.
- Illinois’ Equal Pay Act makes it illegal to pay an employee less than the opposite sex for the same work.
Step 4: Fill out the Illinois new hire reporting form and furnish forms to new employees
When you hire new employees in Illinois, you need to report information about those employees to the Illinois State Directory of New Hires within 20 days of the employee’s official hiring date. The hiring date is generally considered to be the first date an employee performs services you’ll pay them for, or the first day an employee on commission is eligible to earn commission.
You can report new hires on the IDES website. You’ll provide basic information like the employee’s name, address, Social Security number, date of birth, and work start date.
From there, you need to complete a number of other important hiring documents, including:
- Employment contract: It’s a good idea to write an employment contract detailing the job responsibilities your employee will have, the wages you’ll pay, and a summary of the workplace policies that are covered in detail in your employee handbook.
- Form I-9: The United States Citizenship and Immigration Services (USCIS) uses Form I-9, the Employment Eligibility Verification Form, to verify that employees are able to work in the US. As an employer, you have to complete Form I-9 for every employee you hire, and each employee must attest to their employment authorization. You don’t have to file Form I-9 with the USCIS or Immigration and Customs Enforcement (ICE). Instead, you hold onto the form as a record for at least three years from the date of hire or from one year after employment ends (whichever is later). Download Form I-9 and read the complete instructions here.
- Form W-4: Each new employee you hire needs to complete IRS Form W-4, The Employee’s Withholding Certificate, on or before the date of their employment. Form W-4 determines how much federal income tax will be withheld from the employee’s paychecks. Download the form.
- Form IL-W-4: You also need to give employees Form IL-W-4, the Employee’s Illinois Withholding Allowance Certificate, to fill out.
Make sure you keep copies of all the above documents as part of your business’s records.
Step 5: Set up your payroll system
Hiring an employee for the first time is a good opportunity to set up or update your payroll system. Smart small business payroll software doesn’t just make it easier to pay your employees on time—it also simplifies compliance and Illinois small business taxes. When you set up payroll, account for the following taxes:
- Federal income withholding taxes: You’ll use Form W-2 to file federal income tax withholding reports to the IRS. You’ll also file Form 941 on a quarterly basis and Form 940 annually.
- State income withholding taxes: Illinois employers use Form IL-941, the Illinois Withholding Income Tax Return, to report withholding tax. You also need to make payments using Form IL-501, the Withholding Payment Coupon.
- Social Security and Medicare taxes
- Unemployment taxes
Need help determining withholdings for your employees? Check out Gusto’s Illinois Salary Paycheck and Payroll Calculator.
Step 6: Display labor law posters and required notices
Illinois requires employers to post certain signs and notices in the workplace, so employees understand their rights and know which resources are available to them.
Simplify payroll with Gusto
Congratulations on hiring your first employee! Now, consider upgrading your payroll to a more efficient system. Gusto’s full-service payroll platform makes paying employees easy—and filing business taxes stress-free. Create an account today to get started.