Employee Wage Deductions

November 2014

          In a rare and somewhat unexpected action, the Illinois Department of Labor, which is not perceived as an “employer-friendly agency,” recently amended the requirements that are imposed on employers when making deductions from employee wages.

            Under the prior requirements of the Illinois Wage Payment and Collection Act, there were extremely limited circumstances under which unilateral deductions from employee wages or final compensation could be made.  Under the provisions of Section 9 of that Act (820 ILCS 115/9), employers were permitted to deduct from wages or final compensation only the following:

1.     As required by law (i.e., Federal and/or State Taxes or Medicare/Medicaid requirements).

2.     Deductions for the benefit of an employee (i.e., 401(k) contributions or healthcare contributions).

3.     Deductions made in response to a valid wage assignment or wage deduction order.

4.     Deductions made from an employee’s check with written consent by the employee given freely at the time a deduction is made.

Simply stated, under the above requirements, if the employer and employee had agreed to a payroll advance, the employer was legally entitled to make a deduction from the employee’s pay only if the employee gave their written consent at the time of each and every deduction even if these were to reoccur over several pay periods.

            Under the new rule, which became effective August 22, 2014, employee consent requirements have been modified to recognize that employers and employees may enter into a written agreement in advance of making the deduction, permitting that deductions will occur over a period of time.

            To take advantage of this new rule, the following must be followed:

1.     The employer and employee must be entered into a written agreement authorizing the deduction over a recurring series of deductions over time.

2.     The written document must provide, over the period of time during which the deductions will be made, very specific dates (time frame in which the deductions will occur).

3.     The periodic deduction must be for the same amount for each pay period.

4.     The written authorization must contain a statement that the individual employee may voluntarily withdraw his or her authorization to make the deduction and that this withdrawal should be in writing.

Although not required, it is the suggestion of the author that this written agreement authorizing the deductions be executed in duplicate original copies with one (1) original to be retained by the employer and the other original to be retained by the individual employee.

            Employers should also take note that even with this new rule authorizing a written document permitting this type of deduction, no deduction can take place if the deduction would allow an employee’s actual received wages to be less than the minimum wage for a particular pay period and, in addition, employers should ensure that deductions do not exceed fifteen percent (15%) of the employee’s gross wages for the pay period or final compensation because this would create a potential conflict with the Federal Consumer Credit Protection Act.

            Surprising as it may seem, the Illinois Department of Labor has finally “scored one” on behalf of the employer!

            Questions?  Contact Walter J. Liszka, Managing Shareholder of Wessels Sherman’s Chicago office at (312) 629-9300 or by email at waliszka@wesselssherman.com.

Illinois Prevailing Wage Act - Extended Coverage???

October 2014
By: Walter J. Liszka, Esq.

With the recent amendments of the Illinois Prevailing Wage Act (IPWA) and the decision of the Third District of the Illinois Appellate Court in the case of Department of Labor v. Sackville Construction Inc., 402 Ill.App.3d 195 (3 rd District 2010), all companies who are receiving public funds, and not just those in the construction industry, need to be cognizant of how the Illinois Department of Labor (IDOL) is proceeding to enforce the IPWA.
 

The IPWA was initially enacted more than seventy (70) years ago and has mainly been applied in the construction trades to establish that no one working in the construction trades is paid less than the "general prevailing rate of wages" (including hourly cash wages and fringe benefits) for construction work in a designated county where that construction work is being performed for public bodies on public projects. In point of fact, the IPWA pay provisions are established by the IDOL on a county-by-county basis and on a monthly basis. The IDOL provides the "rates to be paid" that are primarily set based on "union contracts" in that county for similar work. This law has again primarily been applied for construction work done directly for public bodies on public projects. However, as a result of the various amendments to the IPWA and recent court decisions, the IDOL is significantly extending the reach of the IPWA in a way that can affect private companies working on private projects.

As previously stated, the IPWA requires that "public bodies" (such as the State of Illinois, city governments, school districts, county governments, etc.) pay the prevailing wage rate to all laborers, workers, and mechanics who are engaged in "public works." The term "public body" is defined to include "any institution supported in whole or in part by public funds," and the term "public works" is defined as "all projects financed in whole or in part through bonds, grants, loans, or other funds that may be made available by or through the state or any of its political subdivisions." While many companies assume that the term "public bodies" and "public works" only applies to projects that are for the benefit of the public and performed only on behalf of a government entity, this is an incorrect assumption.

In the case of Department of Labor v. Sackville Construction Inc., 402 Ill.App.3d 195 (3 rd District 2010), the Appellate Court reversed a trial court decision in favor of the construction company, Sackville Construction Inc., and held that, when looking at the language of the statute, the phrase "an institution supported in whole or in part by public funds" was broad enough to cover a private developer as a "public body" under the statute. In that case, a private developer (Rock Island Industrial Partners) entered into a contract with a general contractor (Hy-Brand Contractors) to construct a 45,000 square foot industrial complex on a vacant lot in Rock Island, IL. After entering into the contract, the developer (Rock Island Industrial Partners) entered into an agreement with the City of Rock Island to construct the building. As part of that agreement, the developer (Rock Island Industrial Partners) agreed to invest $1.5 million into the project and the City of Rock Island conveyed the property via title to the developer for $1.00 and also agreed to contribute $150,000 for "use in the project" and also agreed to pay up to $57,000 for "site clearance and demolition." The general contractor (Hy-Brand Contractors) entered into a contract with Sackville Construction Inc. to provide laborers on the project and the laborers were not paid the prevailing wage.

Also, Hy-Brand Contractors did not inform Sackville Construction Inc. that the City of Rock Island had contributed funds to the project or that the project was covered by the IWPA. After receiving a complaint, the IDOL filed suit against Sackville Construction Inc. for violations of the IPWA. Rock Island Industrial Partners was found to be a "public body" and the private development project was found to be a "public works" because the developer had, in fact, received public funds for the development from the City of Rock Island. Remember, the $150,000 contributed by the City of Rock Island for the site construction and the $57,000 for "site work"!

While the general contractor (Hy-Brand Contractors) was not sued by the IDOL for violations of the IPWA in the Sackville case, this does not mean that the general contractor would not potentially be liable as well. Under the IPWA, any contract that is issued on a public works project must state and inform the subcontractor that the provisions of the IPWA apply to the construction at hand. If this notice is not given, it is possible under the IPWA that the general contractor or, in fact, the public body issuing a contract, would be liable for any interest, penalties, or fines but not wage differential, that might be owed by the subcontractor to the employees if the notice that the project is subject to the IPWA was not in the contract. Simply stated, the subcontractor could "sue the general contractor" and potentially collect the "interest, fines, and penalties" but the subcontractor must pay the "wage differential." How this would affect the "subcontractor" getting future work from the "general contractor" would be the subject of another article - probably a very short one!

Because of these developments and the new approach by the IDOL in aggressively pursuing matters arising under the IPWA, every contractor and/or subcontractor on a project must clearly ask the question, "Is this project funded in whole or in part by 'public funds'? And if it is funded in part by 'public funds,' is it subject to the IPWA?"

 
Questions? Contact Walter J. Liszka, Managing Shareholder of Wessels Sherman's Chicago office at (312) 629-9300 or by email at waliszka@wesselssherman.com .

Payment Cards as Wage Payments?

June 2014
By: Walter J. Liszka, Esq. 

The brilliant Illinois legislature has recently recognized payroll cards as an approved method of wage payment in the State of Illinois. This measure has passed the House (House Bill 5622) after receiving prior approval from the Senate and now awaits Governor Pat Quinn's signature. The author believes that this group is the reincarnation of Nero "who fiddled while Rome burned." As presently written, the Illinois Wage Payment and Collection Act expressly provides only for the payment of wages via Cash or via Check or via Direct Deposit and makes no mention whatsoever of payroll payment cards. Obviously, this dichotomy as to what the Illinois Wage Payment and Collection Act states and what the Illinois legislature has recently done, creates a quandary.

Based on recent guidance from the Illinois Department of Labor as of last year, the DOL attempted to clarify this confusion by establishing certain "rules and regulations" for the use of payment of wages by payroll cards, one of which clearly established that the employee must voluntarily agree to the payment of wages via a payroll card and, furthermore, that the full balance of an employee's compensation must be able to be withdrawn without the payment of any fee.

Once Governor Quinn signs House Bill 5622 into law, the recognition of payroll cards as wage payment will no longer be subject to interpretation. The Bill amends the Illinois Wage Payment and Collection Act by expressly providing for the payment of wages via payroll cards and also establishes, under Section 14.5, very specific requirements that must be met in order to pay wages via

1. Employers must not make payment of wages via a payroll card as a condition of employment of any employee. The employee must be able to voluntarily choose this resource.
2. Employers must offer employees the option of receiving their wages via Cash and/or via Check and/or via Direct Deposit and if the employee voluntarily consents, wages can be paid via the payroll card.
3. Employers must provide disclosure of terms and conditions of the payroll card option prior to initiating payment of wages via a payroll card.
4. Employees must be able to receive at least one (1) full withdrawal of their wages every two (2) weeks without incurring any fee.
5. Employees must be able to receive their transaction history once a month as well as access their balance without a fee.

There are other additional provisions that are incumbent upon an Employer who wishes to pay wages via a payroll card. It should be noted that this law, once signed by Governor Quinn, will become effective on January 1, 2015.

Questions? Contact Walter J. Liszka, Managing Shareholder of Wessels Sherman's Chicago, IL office at (312) 629-9300 or by email at waliszka@wesselssherman.com.

Employee Wage Deductions

November 2014
By: Walter J. Liszka, Esq.

In a rare and somewhat unexpected action, the Illinois Department of Labor, which is not perceived as an “employer-friendly agency,” recently amended the requirements that are imposed on employers when making deductions from employee wages.

Under the prior requirements of the Illinois Wage Payment and Collection Act, there were extremely limited circumstances under which unilateral deductions from employee wages or final compensation could be made. Under the provisions of Section 9 of that Act (820 ILCS 115/9), employers were permitted to deduct from wages or final compensation only the following:

1. As required by law (i.e., Federal and/or State Taxes or Medicare/Medicaid requirements).
2. Deductions for the benefit of an employee (i.e., 401(k) contributions or healthcare contributions).
3. Deductions made in response to a valid wage assignment or wage deduction order.
4. Deductions made from an employee’s check with written consent by the employee given freely at the time a deduction is made.

Simply stated, under the above requirements, if the employer and employee had agreed to a payroll advance, the employer was legally entitled to make a deduction from the employee’s pay only if the employee gave their written consent at the time of each and every deduction even if these were to reoccur over several pay periods.

 Under the new rule, which became effective August 22, 2014, employee consent requirements have been modified to recognize that employers and employees may enter into a written agreement in advance of making the deduction, permitting that deductions will occur over a period of time.

To take advantage of this new rule, the following must be followed:

1. The employer and employee must be entered into a written agreement authorizing the deduction over a recurring series of deductions over time.
2. The written document must provide, over the period of time during which the deductions will be made, very specific dates (time frame in which the deductions will occur).
3. The periodic deduction must be for the same amount for each pay period.
4. The written authorization must contain a statement that the individual employee may voluntarily withdraw his or her authorization to make the deduction and that this withdrawal should be in writing.

Although not required, it is the suggestion of the author that this written agreement authorizing the deductions be executed in duplicate original copies with one (1) original to be retained by the employer and the other original to be retained by the individual employee.

Employers should also take note that even with this new rule authorizing a written document permitting this type of deduction, no deduction can take place if the deduction would allow an employee’s actual received wages to be less than the minimum wage for a particular pay period and, in addition, employers should ensure that deductions do not exceed fifteen percent (15%) of the employee’s gross wages for the pay period or final compensation because this would create a potential conflict with the Federal Consumer Credit Protection Act.

Surprising as it may seem, the Illinois Department of Labor has finally “scored one” on behalf of the employer!

Questions? Contact Walter J. Liszka, Managing Shareholder of Wessels Sherman’s Chicago office at (312) 629-9300 or by email at waliszka@wesselssherman.com.