Illinois payroll laws 2025: Updates, rules, resources, and employer tips

Payroll laws establish the framework for how businesses compensate their employees. In Illinois, that framework includes detailed state labor rules that, in some cases, go beyond federal standards. Illinois is known for its progressive wage laws, including a steadily increasing minimum wage and strong protections for workers’ rights. Employers must also navigate requirements such as mandatory meal breaks, equal pay protections, and strict rules regarding final pay. Additionally, several cities enforce their own labor ordinances that may go above and beyond state mandates.

This 2025 guide outlines key Illinois payroll laws, where they differ from federal requirements, and the taxes and employer obligations you need to know. It also highlights tips, tools, and payroll services to help you stay compliant.

What are payroll laws?

Payroll laws are regulations that govern how employers compensate employees. They include rules about wages, tax withholdings, overtime pay, recordkeeping, and employee classification at both federal and state levels.

Why are payroll laws important?

Payroll laws help protect workers’ rights and ensure businesses meet their legal responsibilities. Following these laws reduces the risk of fines, lawsuits, and payroll errors that can affect employee trust and company operations.

What do payroll laws cover?

Payroll laws outline how employees must be paid, how taxes are withheld and reported, and what rights and responsibilities both parties have. In Illinois, this includes:

• Making sure employees are paid promptly and accurately for all hours worked.
• Establishing clear guidelines for wages, overtime pay, permitted deductions, and employee benefits.
• Requiring accurate recordkeeping to support compliance and resolve disputes.
• Upholding tax obligations at both the state and federal levels.

When businesses follow these laws, they avoid penalties and build a stronger, more compliant workplace.

Who must follow Illinois payroll laws?

Whether you're operating a small business, running a nonprofit, or employing domestic help, Illinois payroll laws take effect as soon as you hire your first employee and pay wages beyond a minimal threshold. These requirements apply regardless of business size or industry.

Here’s who’s required to comply:

• Any employer with one or more employees working in Illinois, including nonprofits and businesses headquartered in other states.
• Employers, including household employers, who pay $1,000 or more in wages in a calendar quarter.

In short, if you have employees working in Illinois and pay them more than a certain amount, you're responsible for complying with state payroll laws, covering everything from wage and hour regulations to tax withholding and filing obligations.

New payroll laws to know in 2025

The following are some of the key 2025 updates to Illinois payroll laws:

• Minimum wage increases: Starting on January 1, 2025, the state minimum wage increased to $15 per hour under the Illinois minimum wage law. The tipped minimum wage increased to $9, and the minimum wage for teens younger than age 18 who work less than 650 hours per year increased to $13 per hour.
• Chicago minimum wage increases: According to minimum wage information released by the City of Chicago, the minimum wage payable by employers with at least four employees increased to $16.60 per hour within the city beginning July 1, 2025. The tipped minimum wage increased to $12.62, and the rate for youth increased to $16.50.
• Pay transparency law: According to the Illinois Department of Labor, employers with 15 or more employees must include pay scale and benefits information in all job postings. This law was effective on Jan. 1, 2025.
• Phase-out of sub-minimum wage for disabled workers: Gov. Pritzker signed House Bill 793 into law, which will phase out subminimum wage for disabled workers. This law mandates the state to move gradually over the next five years to end subminimum wages paid by employers holding federal 14(c) certificates under the Fair Labor Standards Act (FLSA) for an eventual effective date of January 1, 2030.
• Pay stub retention law: Under HB 3763&text=Provides%20that%2C%20if%20records%20are,how%20to%20access%20that%20information.), which was signed into law by Gov. Pritzker, employers must retain copies of their employees’ pay stubs for three years from the date of payment and provide copies upon an employee’s or former employee’s request within 21 days. This law became effective on January 1, 2025.

Federal payroll laws every employer should know

While payroll laws vary by state, federal payroll laws set the baseline that all employers across the U.S.—including those in Illinois—must follow. These laws regulate how wages are paid, how taxes are withheld, and what benefits employers must offer in certain situations. Here's a look at the key federal regulations that impact payroll:

Fair Labor Standards Act (FLSA)

The FLSA establishes federal standards for minimum wage, overtime pay, recordkeeping, and child labor. It applies to most full-time and part-time workers in the private sector and in federal, state, and local governments. These are some of the payroll laws that fall under the FLSA.

• Federal minimum wage: As of 2025, the federal minimum wage is $7.25 per hour.
• Employers can pay tipped employees less than the full minimum wage—as long as the employee earns at least $30 per month in tips and their total pay (wages plus tips) adds up to at least the federal minimum wage of $7.25 per hour.
• Overtime pay: Nonexempt employees must be paid 1.5 times their regular rate for hours worked over 40 in a week.
• Recordkeeping: The FLSA requires employers to keep accurate, accessible records for all nonexempt employees. This includes basic information like name, address, Social Security number, occupation, hours worked, wages paid, and pay rates. Employers using the tip credit must also maintain weekly records of reported tips and the amount of credit claimed.
• Keep for at least 3 years: Payroll records, collective bargaining agreements, and sales or purchase records
• Keep for at least 2 years: Timecards, wage rate tables, schedules, and records of wage changes

Internal Revenue Service (IRS) Regulations

Employers are required to comply with IRS rules pertaining to payroll taxes. Taxes must be calculated, withheld, and submitted accurately and on time. Employers need to:

• Withhold federal income tax from employee wages based on Form W-4 information and current IRS federal withholding tax tables.
• Withhold and match Social Security and Medicare taxes (FICA) from employee wages. For 2025:
• Social Security tax: 6.2% each for employer and employee, up to a wage base limit of $176,100.
• Medicare tax: 1.45% each for employer and employee, with no wage base limit.
• Pay Federal Unemployment Tax Act (FUTA) taxes:
• Employers must pay a federal unemployment tax of 6.0% on the first $7,000 of each employee’s annual wages.
• If all state unemployment taxes are paid on time and the employer’s state is not designated as a credit reduction state, the FUTA tax may be reduced by a credit of up to 5.4%, resulting in an effective rate of 0.6%.
• Only employers pay FUTA; it is not withheld from employee wages.
• FUTA taxes are reported annually using IRS Form 940.

Affordable Care Act (ACA)

The Affordable Care Act (ACA) requires employers with 50+ full-time employees to offer affordable health insurance and report coverage to the IRS.

• They must offer affordable, minimum-value coverage to at least 95% of full-time employees and dependents.
• "Affordable" means the employee's share of self-only coverage doesn’t exceed a set income-based percentage.
• Employers must file Forms 1094-C and 1095-C with the IRS annually to report coverage details.
• Visit the IRS website to see if the ACA applies to your business.

Smaller businesses with fewer than 50 full-time employees may still be subject to certain ACA requirements depending on their specific circumstances. Check the IRS website for additional information on ACA tax provisions for small employers.

Key Illinois payroll laws

While federal payroll laws provide a baseline, Illinois has adopted its own set of employment regulations that often expand protections for workers. If you employ anyone in Illinois, it’s important to understand how these state laws apply and how they may differ from federal requirements.

Minimum wage in Illinois for 2025

As of January 1, 2025, the Illinois statewide minimum wage is $15 per hour for most employees aged 18 and older. Tipped workers must be paid at least $9 per hour in base wages, and employers must ensure that tips bring their total hourly pay to at least $15. Workers under the age of 18 who work fewer than 650 hours per year must be paid a minimum of $13 per hour.

Local minimum wage rates

Some local jurisdictions in Illinois have their own minimum wage laws that exceed the state standard. For example, Chicago has set its minimum wage at $16.60 per hour as of July 1, 2025. Cook County also enforces its own minimum wage rules, which may differ from both the state and Chicago. Employers must follow the highest applicable rate based on where employees physically work. Always check with the local city or county government for the most up-to-date wage requirements.

Illinois overtime rules

Illinois employers must comply with both state and federal overtime requirements for nonexempt employees. In general, employees must be paid overtime at 1.5 times their regular rate of pay for any hours worked over 40 in a single workweek. Illinois law does not require daily overtime pay but does reinforce weekly overtime protections.

In addition to hourly wage rules, employers must maintain accurate time records and ensure overtime-eligible workers are compensated appropriately. Some occupations may be exempt from overtime, so it’s important to review classifications carefully and refer to both the Illinois Wage and Hour Law and the federal FLSA rules and regulations when making determinations.

Pay frequency

Illinois law outlines specific requirements for how frequently employees must be paid. These rules, found in the Illinois Wage Payment and Collection Act, ensure that workers receive their earnings in a timely and predictable manner. Employers must follow strict timelines based on the type of employee and the pay schedule used.

• Wages must be paid at least semi-monthly for most non-exempt employees unless otherwise exempted by law.
• Employers are required to establish regular paydays in advance and communicate them clearly to employees, either through a written notice or a posted schedule in the workplace.

Semi-monthly pay periods

• Wages earned between the 1st and 15th of the month must be paid no later than the 26th of that month.
• Wages earned between the 16th and the end of the month must be paid by the 10th of the following month.

Other pay periods (weekly, biweekly, etc.)

• Employees paid on a weekly or biweekly basis must receive their wages no later than 13 days after the end of the pay period.

Overtime pay

• Overtime wages must be paid no later than the next regularly scheduled payday after the overtime was earned.
• If there are corrections or adjustments needed, they must be reflected in the following pay period, along with an itemized explanation showing the covered dates.

Exception for exempt employees

Certain exempt employees, as set forth in the FLSA, may be paid once per month as long as the full monthly salary—including for any unearned days—is paid on or before the 26th of that month.

Final paycheck laws in Illinois

Under Illinois law, final wages must be paid within a specific time frame depending on how employment ends:

• Termination (fired or laid off): All final wages, including any earned but unused vacation time (if promised by policy or contract), must be paid by the next regularly scheduled payday.
• Voluntary resignation: Whether or not notice is given, final pay is due on the next scheduled payday following the employee's departure.
• Payment method: Employees who request final wages by mail must receive the postmarked payment by the payday deadline.
• Accrued vacation (PTO payout): If an employer provides paid vacation or PTO and has a policy or practice of paying it out upon termination, those hours must be included in the final paycheck. Employers cannot enforce "use-it-or-lose-it" policies at the end of employment.
• Waiting time penalty: If an employer fails to pay final wages on time without legal justification, the employee may file a claim with the Illinois Department of Labor. Penalties may be assessed, but Illinois law does not mandate a daily waiting-time penalty.
• Additional considerations:
• Sick leave: Employers are not required to pay out accrued sick leave at termination unless company policy states otherwise.
• Severance pay: Not required by Illinois law, but may be provided based on company policy or employment contracts.
• Deductions: Employers may not deduct for unreturned property or other items unless the employee has provided written consent or the deduction is otherwise authorized under Illinois law.

For more information, consult the Illinois Department of Labor’s guidelines on final compensation and wage payment protections.

Illinois paid leave

Paid leave is governed under Illinois’ new Paid Leave for All Workers Act, which took effect on Jan. 1, 2024. This law requires nearly all employers in the state to provide paid time off that employees can use for any reason, including illness, caregiving, or personal matters.

• Qualification criteria: Employees are eligible for paid leave if they work in Illinois and are not covered by a municipal or county ordinance with stricter paid leave laws (such as those in Chicago or Cook County). Eligible employees begin accruing leave on their first day and can use it after completing 90 days of employment.
• Amount of leave: Most employees earn a minimum of 40 hours (or 5 days) of paid leave per year, regardless of whether they are full-time, part-time, or temporary workers.
• How leave is accrued: Employers have two options for providing leave:
• Accrual method: Employees accrue 1 hour of paid leave for every 40 hours worked. Unused leave may carry over year to year, though employers may cap annual use at 40 hours.
• Front-loading method: Employers can provide the full 40 hours of leave at the beginning of each year. If front-loaded, carryover is not required.
• Permitted use: Employees may use paid leave for any purpose and are not required to provide a reason or documentation. However, employers may request advance notice if the leave is foreseeable.
• Local laws: Some jurisdictions, including Chicago and Cook County, have their own paid sick leave laws that may offer more generous benefits. In those areas, employers must comply with the more protective local ordinance.

Illinois payroll taxes

In Illinois, employers must comply with federal payroll tax requirements and also administer the following key state payroll taxes and withholdings:

Unemployment Insurance (UI)

Unemployment Insurance provides temporary financial assistance to eligible workers who lose their jobs through no fault of their own. The program is administered by the Illinois Department of Employment Security (IDES). Employers are responsible for registering with IDES and making regular UI tax contributions. Rates range from 0.75% to 7.85% and are applied to a taxable wage base of $13,916 per employee for 2025. The actual rate is determined by an experience rating, which considers factors like the number of UI claims filed against their business.

State Income Tax Withholding

Illinois imposes a flat state income tax on employee wages. Employers must withhold Illinois state income tax from employee paychecks and remit those withholdings to the Illinois Department of Revenue (IDOR). The current tax rate is 4.95%, but this may be subject to change with future legislation.

While employees are responsible for paying Illinois state income tax, it is the employer’s duty to accurately withhold this tax from employee wages and submit it to the Illinois Department of Revenue. Failure to correctly withhold and remit these amounts can result in penalties, interest charges, and potential compliance issues. Proper payroll management is essential to avoid legal and financial consequences for the business.

Illinois payroll compliance requirements

Illinois employers must fulfill several ongoing obligations to remain compliant with state labor and payroll laws. Below is a summary of the key responsibilities every employer should be aware of:

Register as an employer

In Illinois, businesses must register with the Illinois Department of Employment Security (IDES) and the Illinois Department of Revenue (IDOR) once they meet certain wage or employment thresholds:

• Businesses: If you pay wages of $1,000 or more in any calendar quarter, you must register with IDES for Unemployment Insurance within 30 days.
• Household employers: If you pay a domestic worker $1,000 or more in a calendar quarter, you must also register with IDES.
• Registration is available online through the MyTax Illinois portal.

Penalty: Failing to register or report new hires may lead to financial penalties, including $25 per unreported employee and higher penalties if the failure is deemed intentional.

Provide itemized pay stubs

Illinois law requires employers to provide employees with written or electronic wage statements on each payday. These pay stubs must include:

• Total hours worked
• Gross and net wages earned
• Deductions taken
• Pay period beginning and end dates
• Employer name and address

Records must be retained for at least three years and made available upon request.

Penalty: Inaccurate or missing pay stubs may result in employee complaints and Department of Labor investigations. Non-compliance could lead to fines or legal action.

Furnish required notices

Under the Illinois Wage Payment and Collection Act and other labor laws, employers must provide written notice of employment terms. Employers are expected to communicate:

• Rate and frequency of pay
• Employment classification (exempt vs. nonexempt)
• Designated paydays
• Applicable benefits and policies

Changes to pay or benefits must be disclosed in writing. Some industries, such as hospitality, may have additional notice requirements under local ordinances in places like Chicago.

Offer direct deposit only with employee consent

Illinois permits employers to pay wages through direct deposit, but only with an employee’s voluntary written consent. Employees must be given the choice to receive wages via check or another approved method if they decline direct deposit. Employers must ensure proper documentation and allow employees to select the account for deposit.

Adhere to timely wage payments

Employers must pay employees at least semi-monthly, unless an exception applies. Paydays must occur no later than 13 days after the end of the pay period.

Penalty: Late wage payments may result in liability for the full amount owed, plus damages equal to 2% of the underpayment per month, court costs, and attorney fees if legal action is pursued under the Wage Payment and Collection Act.

Pay payroll taxes on time

Illinois employers are required to withhold and remit state income tax to the Illinois Department of Revenue (IDOR) and make Unemployment Insurance contributions through IDES. Tax payment due dates depend on your payroll frequency and total withholding liability.

Penalty: Late or incorrect payments can result in interest charges, penalties of up to 15% of the unpaid amount, and enforcement action by state agencies.

Comply with electronic filing and payment requirements

Most Illinois employers are required to electronically file employment tax returns and wage reports using MyTax Illinois, which also processes UI and withholding tax reports.

Penalty: Failure to file or pay electronically may result in administrative penalties and delays in processing employer accounts.

Submit equal pay and demographic reports (if applicable)

Employers with 100 or more employees in Illinois that are required to file a federal EEO-1 report must also file an Equal Pay Registration Certificate (EPRC) with the Illinois Department of Labor under the Equal Pay Act of 2003 (as amended).

• Reporting includes demographic and compensation data by job category, gender, and race/ethnicity.
• Applications must be submitted every two years, starting from assigned deadlines.

Penalty: Non-compliance may result in fines up to $10,000 per violation and disqualification from state contracts.

Can an employer withhold a paycheck for any reason?

No. Employers cannot withhold a paycheck for any reason not allowed by law. They are legally required to pay all earned wages on time. Deductions are only permitted if:

• Required by law (e.g., taxes, wage garnishments)
• Authorized in writing by the employee (e.g., benefits)
• Covered under a collective bargaining agreement

Employers may not withhold wages as punishment or for issues like property damage. Unlawful withholding can lead to legal action by the employee.

Consequences of non-compliance

In addition to the specific regulatory actions outlined above, failing to follow Illinois payroll rules can lead to broader consequences for your business:

Financial penalties

Illinois agencies, such as the Department of Labor and the Department of Revenue, may assess fines for violations like late wage payments, failure to withhold or remit taxes properly, and missing or inaccurate filings. These penalties can accumulate quickly and impact your bottom line.

Employee claims and lawsuits

Employees who are not paid accurately or on time may file wage claims with the Illinois Department of Labor or pursue civil lawsuits. These cases often result in employers being required to pay back wages, interest, damages, and legal fees.

Audits and investigations

Non-compliance may trigger state audits from the Illinois Department of Employment Security or other agencies. These investigations often require the employer to produce detailed payroll records and may reveal additional issues, increasing the likelihood of further penalties.

Reputation damage

Payroll errors can damage relationships with employees and reduce morale. A reputation for poor payroll practices may deter potential job candidates and harm relationships with clients or partners.

Operational setbacks

Resolving payroll problems, such as correcting errors, reissuing checks, or handling legal disputes, can consume valuable time and resources. These disruptions can delay day-to-day operations and divert attention from running the business effectively.

Common payroll mistakes (and how to avoid them)

Payroll mistakes can cost businesses more than just money—they can lead to fines, compliance violations, and damaged employee trust. Below are some of the most frequent errors companies make, along with ways to prevent them.

Misclassifying employees

Misclassifying a worker, for example, labeling an employee as an independent contractor, can lead to serious compliance issues in Illinois. State and federal agencies may initiate audits if inconsistencies are found, especially if a business issues both a W-2 and a 1099 to the same person in the same tax year.

How to avoid this:

• Use IRS and Illinois Department of Labor criteria to distinguish contractors from employees
• Use QuickBooks payroll features to categorize workers and file the correct forms.
• Audit classifications regularly to stay compliant.

Underpaying employees

Improper wage payments can result in significant financial repercussions for employers. In 2024, the U.S. Department of Labor’s Wage and Hour Division recovered over $273 million in back wages and damages on behalf of nearly 152,000 workers across the country.

How to avoid this:

• Stay current on wage and hour laws.
• Run regular payroll audits.
• Use automated payroll and time-tracking tools, like a time card calculator.
• Train staff on compliance basics.
• Keep accurate, organized records.

Miscalculating overtime

Overtime mistakes are a top source of wage claims. Errors like not separating regular from overtime hours or applying the wrong rate can add up fast.

How to avoid this:

• Make sure your payroll system automatically correctly tracks and calculates overtime.
• Review exempt vs. nonexempt classifications.
• Train staff on both federal and Illinois overtime rules.
• Use timesheet templates to help employees accurately track their hours and overtime.

Late wage payments

Paying employees late damages trust and can lead to penalties.

How to avoid this:

• Automate payroll with scheduled direct deposits.
• Monitor cash flow regularly.
• Use payroll calendar templates, alerts, and reminders to track due dates and meet deadlines.

Poor recordkeeping

Incomplete or inaccurate records can derail compliance, lead to fines, and make it hard to defend against claims.

How to avoid this:

• Keep detailed records of hours, wages, classifications, and deductions.
• Use secure, digital payroll software to track and store information.
• Back up your data regularly.

Timesheet errors

According to QuickBooks research, U.S. employers report needing to fix errors on 80% of employee-submitted timesheets. One of the main causes? Employees forget to clock in or out and later struggle to recall their actual hours worked.

How to avoid this:

• Employ digital time-tracking software and tools with real-time clock-in/clock-out features.
• Enable automated reminders or mobile alerts to prompt employees throughout the day.
• Train staff on proper timekeeping procedures and the importance of accurate reporting.
• Review timesheets regularly before processing payroll to catch discrepancies early.

Incorrect tax withholding

Failing to withhold the correct amount of federal, state, or local taxes can result in penalties.

How to avoid it:

• Use payroll software that automatically calculates and withholds the correct taxes for each jurisdiction.
• Stay up to date with IRS and state tax rate changes each year.
• Review employee W-4 forms regularly and update them as needed.
• Reconcile payroll tax filings with payment records to catch discrepancies early.
• Consider working with a payroll provider that offers tax filing and accuracy guarantees.
• Accurately estimate taxes and net pay by using an Illinois paycheck calculator before processing payroll.
• Consult with a tax professional in Illinois who understands the state’s payroll landscape to ensure you're meeting all local obligations and staying compliant.

Payroll resources for Illinois employers

Employers in Illinois must comply with both state and federal requirements, which involve coordination with several government agencies. Here's a summary of the most relevant ones:

• Illinois Department of Employment Security (IDES): Administers the state’s Unemployment Insurance program, manages employer registration, and collects wage reports and payroll tax contributions.
• Illinois Department of Revenue (IDOR): Oversees state income tax withholding, collection, and reporting. Employers must register with IDOR to submit employee tax withholdings and comply with electronic filing requirements.
• Illinois Department of Labor (IDOL): Enforces state labor standards, including minimum wage, overtime, final pay, and wage claim resolution under the Illinois Wage Payment and Collection Act.
• Internal Revenue Service (IRS): Handles federal payroll tax responsibilities, including federal income tax withholding, Social Security, Medicare, and Federal Unemployment Tax Act (FUTA) compliance.
• U.S. Department of Labor (DOL): Enforces federal labor laws under the Fair Labor Standards Act (FLSA), including minimum wage, overtime, and recordkeeping rules.

Simplify payroll law compliance for your Illinois business

Illinois payroll laws can be intricate, and even minor errors in compliance or recordkeeping may lead to significant penalties and legal complications. QuickBooks Payroll helps you stay accurate and compliant by automatically calculating, filing, and paying your federal and state payroll taxes—backed by a 100% accuracy guarantee and tax penalty protection.** On-the-go time tracking with QuickBooks Time keeps employee hours organized and synced. Plus, as your business grows, QuickBooks scales with you, offering the right tools to support faster, more seamless payroll.

Disclaimer:

****Accuracy Guaranteed**: Available with QuickBooks Online Payroll Core, Premium, and Elite. We assume responsibility for federal and state payroll filings and payments directly from your account(s) based on the data you supply. As long as the information you provide us is correct and on time, and you have sufficient funds in your account, we'll file your tax forms and payments accurately and on time or we'll pay the resulting payroll tax penalties. Guarantee terms and conditions are subject to change at any time without notice.

Tax penalty protection: If you receive a tax notice and send it to us within 15 days of the tax notice we will cover the payroll tax penalty, up to $25,000. Additional conditions and restrictions apply. Only QuickBooks Online Payroll Elite users are eligible to receive tax penalty protection.

*This content is for information purposes only and information provided should not be considered legal, accounting or tax advice or a substitute for obtaining such advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by state or locality. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer's particular situation. Intuit Inc. does not have any responsibility for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. Intuit Inc. cannot warrant that the material contained herein will continue to be accurate, nor that it is completely free of errors when published. Readers should verify statements before relying on them.*