Employers in construction and landscaping industries should be aware that on July 23, 2013, Illinois Gov. Pat Quinn signed two bills that add significant teeth to enforcement under the Illinois Employee Misclassification Act (the Act). The Act imposes penalties upon those employers that improperly misclassify employees as independent contractors. Gov. Quinn estimates that the State of Illinois loses upwards of $700 million in payroll and other employment-related taxes as a result of this misclassification.

House Bill 923 (Public Act 98-0105) will require contractors in the construction industry to report to the Illinois Department of Labor all payments made to any individual, sole proprietor or partnership not classified as an employee for work performed for the contractor. Such payments must be reported to the Department on or before January 31 following the taxable year in which the work was performed. The report must include the name, address and federal employer identification number of each individual, sole proprietor, or partnership performing the work, as well as for the contractor for whom the work was performed. Payments for the provision of equipment and materials must also be included in the report. The amount of the payments will be confidential and exempt from public disclosure, but the names, addresses and FEIN's of the contractor, individual, sole proprietor or partnership contained in the reports will be subject to disclosure pursuant to a Freedom of Information Act request.

Contractors who fail to file the annual report will be subject to civil penalties (up to $2000 per violation) and possible debarment.

For the first time, House Bill 2649 (Public Act 98-0106) imposes personal liability for civil penalties for any officer or agent of a contractor who knowingly violates any of the provisions of the Illinois Employee Misclassification Act.

These bills, which take effect January 1, 2014, reflect a continuing effort by the federal government and the states to crack down on contractors who misclassify employees as independent contractors in an effort to avoid employment-related taxes and liability under federal and state labor and employment laws.