On November 3, 2023, the Illinois Department of Labor (IDOL) published much anticipated proposed regulations interpreting the Illinois Paid Leave for All Workers Act (the “Act”) set to take effect January 1, 2024. The Act will require nearly all covered Illinois employers to provide its covered employees up to 40 hours of paid leave per year, to be used “for any purpose.” Illinois rulemaking procedures require at least a 90-day notice period before the regulations can be finalized, meaning that employers will not have the benefit of final rules prior to the Act’s effective date. Therefore, employers should take careful note of the proposed regulations, particularly on the issues highlighted below, and implement their paid leave policies accordingly to comply with the new law.

Exemption for Pre-Existing Paid Leave Policies

The Act appeared to provide broad exemption language for employers with pre-existing paid leave policies that provided employees at least 40 hours of paid leave and offered employees the option, at their discretion, to take paid leave for any reason. If an employer’s policy fell within this exemption, the Act indicated that the employer would not need to modify its paid time off policy to comply with the Act. 820 ILCS 192/20(b).

Employers with paid time off (PTO) benefits more generous than what the Act requires have been waiting with bated breath to determine how broadly the IDOL would interpret this provision. Notably, the proposed regulations allow employers to largely keep their current PTO policies intact to meet the requirements of the Act, stating specifically:

An employer who has a qualifying pre-existing paid leave policy in effect on January 1, 2024, is not required to modify the pre-existing paid leave policy. If, after January 1, 2024, the employer modifies a pre-existing paid leave policy in such a way that it no longer provides 40 hours of paid leave to be used for any reason in accordance with Section 15(a) of the Act, that policy no longer qualifies for this subsection (b).

Qualifying pre-existing leave policy means a bona fide paid leave policy that an employer has enacted prior to January 1, 2024, that, in practice, allows all employees to take at least 40 hours of paid leave for any reason of the employee’s choosing.

Based on the language in the proposed rule, it appears, then, that an employer with a PTO policy that offers its employees at least 40 hours of PTO that can be used for any reason per year does not need to change its policy, even if the PTO policy provisions do not align with the Act on issues such as increment of use, advance notice/pre-approval provisions, and carryover. The proposed regulations do not address whether any job protection must be provided to PTO absences that fall under this pre-existing policy exemption, or if employers can continue to enforce their formal attendance policies and points systems.

Remote Employee Coverage

The Act generally defines a covered “employee” in the same manner as the Illinois Wage Payment and Collection Act. The Act does not specify a minimum threshold of hours worked in Illinois for coverage, nor does it require that an employee work for an Illinois-based company for coverage. This ambiguity prompted many questions, such as the coverage of remote employees working in Illinois for a company based out-of-state, remote employees working out-of-state for a company based in Illinois, and numerous permutations of a hybrid work model.

Recognizing the need to address remote employees, the proposed regulations define an employee as one who:

• Works for an employer whose base of operations, regional office, or headquarters is in Illinois and that employee’s work is primarily performed in Illinois; or
• Primarily performs work in Illinois for an employer that performs substantial business in the state, markets its services in the state, or maintains a registered agent within the state of Illinois; or
• Primarily performs work in Illinois and resides in Illinois.

When considering whether work is “primarily performed in Illinois,” IDOL will consider the following factors: (a) the ratio of work performed in Illinois versus outside of Illinois; (b) whether the work performed in Illinois is isolated, temporary, or transitory; and (c) whether the work performed outside of Illinois is of the same nature or has the same duties of the work performed in Illinois.

Accrual and Carryover of Paid Leave

The Act allows employers to frontload or accrue paid leave over the benefit year.  Per the proposed regulations, paid leave accrues at a rate of one hour for every 40 hours worked, but the calculation must be made on a fractional basis based on 15-minute work increments. For example, if an employee works for 75 hours in a biweekly pay period, they will accrue 1.875 hours of paid leave.

Under the proposed rule, employees will accrue leave faster than the law requires. For example, if an employee works 46 minutes, the employee will have access to leave accrued for a full hour; if the employee works 1h 1m, the employee will be considered to have worked 1h 15m. Unlike traditional rounding, which might round up or round down, the proposed regulations require that employers always round up, regardless of where on the “dividing line” the time worked exists.

Where paid leave is accrued, the Act indicates that “all” accrued but unused paid leave must carry over from one 12-month period to the next. Notably, the proposed regulations indicate that “[e]mployers may establish a reasonable policy . . . restricting employees’ ability to carry over more than 80 hours of unused paid leave.” At this point, the regulations do not provide any additional detail about the ability to impose a carryover cap.

Frontloading Paid Leave

In lieu of accruing paid leave as work is performed, employers may frontload the paid leave upon hire and at the beginning of each 12-month period thereafter. If an employer selects the frontload method, the proposed regulations indicate that the employer must give written notice to the employee informing the employee of the frontload amount before that frontload amount is granted. “Written” notice means a printed or printable communication in physical or electronic format, including a communication that is transmitted through electronic mail, text message, or a computer system or is otherwise sent or stored electronically.

Under the proposed regulations, proration of the frontload amount is permissible for both new hires and for part-time employees. The frontloaded amount must meet or exceed what the employee would have been entitled to accrue over the time period the frontload amount is intended to cover. For instance, for a part-time employee starting work on January 1 working 25 hours/week, the frontload amount would need to total a minimum of 32.5 hours. For a full-time (40 hour/week) employee starting work on July 1, the frontload amount would need to total a minimum of 26 hours.

Under the Act, if an employer frontloads 40 hours of paid leave at the beginning of the 12-month period, it need not carry over unused paid leave from the prior 12-month period. The Act was unclear as to whether frontloading a prorated amount of hours for part-time employees would alleviate the need to carry over unused time from one 12-month period to the next. The proposed regulations reference but do not resolve the issue (“Employees who receive frontloaded paid leave at the beginning of the 12-month period, in accordance with Section 200.220, are not entitled to carry over paid leave time from one 12-month period to the next. See Section 15(c) of the Act.”¹).

The proposed regulations allow employers to frontload paid leave to some of its employees, while providing accrued leave to others (e.g., exempt vs. non-exempt employees) so long as the employer does not do so as a subterfuge for discrimination.

Requesting and Using Paid Leave

The proposed regulations indicate that while employers can set a minimum increment of two hours of paid leave, employees would be entitled to use paid leave in one-hour increments thereafter.

In general, the proposed regulations reiterate that the employee ultimately determines whether and when to use paid leave. Employees may choose to use their paid leave before using any other leave benefits provided by the employer or state law. Likewise, they may choose to use any other leave benefits provided by the employer or state law before using paid leave. If an employer offers more than one type of leave, the employer should confirm and document what category of leave the employee wishes to draw from for an absence.

Importantly, the proposed regulations create a mechanism in which employers may deny paid leave requests in certain limited circumstances due to “operational necessity.” To do so, the employer must maintain a written policy that outlines how leave requests will be considered, and any basis for denial. In considering whether an employee’s request for paid leave may be denied based on the employer’s core operational needs for the requested time period, relevant factors include:

• Whether the employer provides a need or service critical to the health, safety, or welfare of the people of Illinois;
• Whether similarly situated employees are treated the same for the purposes of reviewing, approving, and denying paid leave;
• Whether granting leave during a particular time period would significantly impact the business operations due to the employer’s size; and
• Whether the employee has adequate opportunity to use all paid leave time they are entitled to over a 12-month period.

Employers denying leave based on operational needs must maintain and provide to the employee a record of each request that was denied and the reason for the denial.

Additionally, per the proposed regulations, employers may restrict the use of paid leave to the employee’s regular workweek.

Employer Paystub, Notice, and Posting Requirements

Under the Act, employers must satisfy the following notice requirements:

• Notice: Post an IDOL-provided notice in a conspicuous place on the work premises and include a copy of the notice in a written document, employee manual, or policy. The notice must be provided in English and any other language commonly spoken in the workplace.
• Policy: Provide a written policy that contains notice procedures for employees if required by the employer.
• Recordkeeping: Maintain accurate records showing hours worked, paid leave accrued and used, and remaining leave balance.

The proposed regulations require several additional requirements including the following:

• Access to Policy: Provide employees with the paid leave policy prior to or upon commencement of employment or within 90 days after the effective date of the Act. Employers that regularly communicate with employees by electronic means must provide the notice by the regular electronic method.
• Customized Employer Statement: Post a statement, written by the employer, summarizing the employer’s written policy and how an employee can obtain a copy of the document. The statement must be provided in English and any other language commonly spoken in the workplace.
• Paystub Requirement: Report employee’s paid leave accrual and remaining balance on each paystub and provide these records to the employee upon request.  Alternatively, employers may report the accrual and balance on the form that the employer normally uses to notify the employee of wage payments and deductions from wages.

Rate of Pay

Employees must receive their average hourly rate of pay according to the Illinois Minimum Wage Law. For employees who customarily receive gratuities, the regular rate of pay cannot drop below the applicable minimum wage.

The Act addresses how employers must compensate employees when they use leave as follows:

Employees shall be paid their hourly rate of pay for paid leave. However, employees engaged in an occupation in which gratuities or commissions have customarily and usually constituted and have been recognized as part of the remuneration for hire purposes shall be paid by their employer at least the full minimum wage in the jurisdiction in which they are employed when paid leave is taken. This wage shall be treated as the employee's regular rate of pay for purposes of this Act.

In its proposed regulations, for some employees, IDOL focuses on the Act’s reference to “regular rate of pay” and requires the paid leave rate of pay calculation to mirror the calculation employers must use when they calculate the “regular rate” for overtime purposes. It proposes to impose this standard for “an employee who is not engaged in an occupation in which gratuities or commissions have customarily and usually constituted part of remuneration” (emphasis added). The only pre-regulations guidance comes from an IDOL FAQ on the rate of pay for tip-credit employees. When discussing tip-credit employees, however, the proposed regulations reference only employees who customarily receiving gratuities, which might suggest that non-tip-credit employees who earn commissions are subject to the “regular rate” calculation.

The only other discussion on how to calculate the rate of pay involves salaried employees, who must be paid “an hourly amount equivalent to their annualized rate of pay divided by the number of hours they are expected to work in a year.” The proposed regulations do not indicate whether this applies to any employee who earns a salary or only to overtime-exempt employees who do.

Unfortunately, the proposed regulations create more questions than they answer on this point. For example, does a calculation method under federal and state overtime laws that applies only to certain employees when they work a certain number of hours in a workweek apply to all types of employees under the paid leave law when they do not work? Why, if at the time of an absence an employee’s normal hourly rate or equivalent is known, must an employer potentially consider multiple forms of compensation that go into the overtime “regular rate” calculation to generate a different rate of pay for paid leave purposes? If an employee earns a salary but also customarily receives commissions, which calculation do employers use? And, of course, what does it mean for commissions to “customarily and usually constitute[]” and be seen as part of an employee’s remuneration? We hope IDOL provides further clarification when it finalizes the regulations.

Overlap with Local Laws

The proposed regulations reiterate and slightly expand upon the Act’s integration (or lack thereof) with the local Cook County and Chicago paid sick leave ordinances. Specifically:

• The Act does not apply to employers located in a municipality where the employer is required to provide paid leave (including paid sick leave) to an employee.
• The Act will apply to employers located in a municipality that has “opted out” of the Cook County Earned Sick Leave Ordinance.
• If either Chicago or Cook County amends their ordinances after January 1, 2024, the employer must comply with the law that provides more generous paid leave benefits, rights, and remedies.

Next Steps

The proposed regulations have a 45-day public comment period. For employers that want to submit a written comment, the proposal includes information about to whom, and where, they can do so.

In the meantime, employers should consider whether and how their pre-existing or proposed policies, practices, and procedures align with the Act and the proposed regulations. Given there remains limited time between now and when the Act takes effect on January 1, 2024, and that, given multiple upcoming holidays, addressing issues sooner than later would be prudent. Additionally, employers might consider how things could need to change – again, within a short timeframe – once the proposed rules become final, which, as we note above, IDOL does not expect to occur until after the Act takes effect, thereby potentially increasing compliance challenges.