How to Hire Employees in Illinois: The Complete Compliance Sequence

The first Illinois hire I helped set up was a warehouse coordinator outside Elgin. The owner had the offer signed, the workstation ready and a payroll account open. What he did not have was a workers’ compensation policy, because he assumed one part-time employee was below some threshold. In Illinois there is no threshold. One employee triggers the requirement, and a knowing failure to insure starts at a $10,000 minimum fine.

Hiring in Illinois is not difficult. It is sequenced. Two state agencies want registrations before your first payroll run. The federal work authorization form has a three business day clock. The state new hire report has a 20 day clock. Coverage has to be in force on day one, not the day the policy paperwork clears. Do these in the wrong order and the paperwork still gets done, just after the exposure window has already opened.

This guide walks the sequence in the order the work actually happens, from the federal identification number through the first 90 days on the job, then the state rules that shape your offer letter and handbook, then the Chicago and Cook County layers, then the classification trap that catches the most small employers. If you want the generic version first, start with hiring your first employee and come back here for the Illinois specifics.

I built FirstHR because a founder making a first hire should not need a compliance consultant to keep four agencies satisfied at once. The steps below are the ones a small business without a dedicated HR person has to run manually, and every one of them is a date on a calendar.

The Illinois Hiring Sequence at a Glance

Every step below has an owner agency and a deadline that agency enforces. Nothing here is optional for an employer with one W-2 employee working in Illinois. The order matters because two of the steps (registration and insurance) have to be finished before the first day of work, not during the first week.

The rest of this guide takes each step in turn, with the source agency named at every claim, then moves to the state and local rules that change how you write the job posting, the offer letter and the handbook.

Step 1: Get Your Federal Employer Identification Number

Your federal employer identification number is the first thing every other step asks for. Apply online through the IRS EIN application and the number is issued at the end of the session. It takes minutes and costs nothing.

If you formed an LLC or corporation and already have an EIN, you do not need a second one. If you have been running as a sole proprietor and filing under your own Social Security number, you need an EIN now, because payroll tax deposits and Illinois registrations are keyed to it.

Have the EIN in hand before you touch the state forms. Both Illinois registrations ask for it on the first page, and starting the state process without it means starting over.

Step 2: Register With the Illinois Department of Revenue and IDES

Illinois splits employer registration between two agencies. The Illinois Department of Revenue registers your business for income tax withholding on Form REG-1, and its guidance is to register before you make any purchases or sales or hire an employee. The Illinois Department of Employment Security registers you for unemployment insurance on Form REG-UI-1, the Report to Determine Liability Under the Unemployment Insurance Act.

The IDES deadline is written into the form itself: every newly created employing unit must file the report within 30 days of the date on which it commences business, under 820 ILCS 405/1800. IDES also states plainly that new employers must register within 30 days of start-up, either electronically through the state tax portal or by submitting the signed REG-UI-1.

You can file both in one pass. Form REG-UI-1 is designed to be attached to Form REG-1, and the Department of Revenue notes that you may also register with IDES through the same online system. Online registration is processed in about one to two business days. The paper route takes weeks, which is a problem when your start date is next Monday.

What Your Unemployment Insurance Account Costs

IDES publishes contribution rates each year in its EA-50 report. For 2026, most employers that became liable on or after January 1, 2024 pay the entry rate of 3.350%, which includes the 0.550% fund building rate. Employers in the administrative support and waste management sector pay a higher entry rate of 3.450%. Only the first $14,250 of wages paid to a worker in 2026 is subject to contributions.

Once you have three or more years of experience, your rate becomes variable and is calculated from your own benefit charges. The 2026 minimum contribution rate is 0.750% and the maximum is 7.050%. That spread is why unemployment insurance claim management belongs in your termination process, not just your payroll process.

Step 3: Verify Work Authorization on Form I-9

Every employer in the country, including every Illinois employer, must complete Form I-9 for each new hire. The form has two halves with two different deadlines, and the employer half is the one that gets missed.

The employee completes their section on or before the first day of work, attesting to citizenship or work authorization status. The employer completes the second section by the end of the third business day after work begins, after physically examining original documents that establish identity and employment authorization. You may not tell the employee which documents to bring; the choice belongs to the worker.

Retain each I-9 for three years from the date of hire or one year after the employment ends, whichever date is later. Civil penalties for paperwork violations are assessed per form and escalate for repeat findings, so a stack of ten sloppy forms is ten separate exposures rather than one.

Where Illinois Adds Its Own Layer

Illinois does not impose a general E-Verify mandate on private employers, but the state Right to Privacy in the Workplace Act governs what you may do with federal verification signals. Under that Act, an employer may not take adverse action against a worker based only on receiving a discrepancy notice from the Social Security Administration or the Internal Revenue Service, and the employer owes the employee notice when one arrives. The Act is enforceable by the Illinois Department of Labor, by the Attorney General and by private lawsuit.

Step 4: Collect the W-4 and the IL-W-4 Before the First Paycheck

Two withholding forms, one deadline. The federal Form W-4 sets federal income tax withholding, and the Illinois Form IL-W-4 sets state allowances. Both belong in the new hire packet you send before day one, not in a folder the employee fills out during their first week.

Illinois withholding is refreshingly simple compared with bracket-based states. The Illinois Department of Revenue requires 4.95% of net income to be withheld from employee compensation, a flat rate effective July 1, 2017. There is no local income tax layered on top anywhere in the state, including Chicago.

If a new employee does not return a W-4, you still have to run payroll, and you withhold at the default single rate with no adjustments. That is almost always more tax than the employee wanted withheld, and the conversation that follows is avoidable. Send the forms with the offer.

Step 5: File the New Hire Report Within 20 Days

Illinois gives you 20 days. IDES requires employers to report new hires within 20 days of the employee’s first day on the payroll, and the obligation covers independent contractors as well as employees.

The report itself is short. You supply the employee name, home address, Social Security number and date of hire, plus your business name, address and federal employer identification number. There is an optional field for the address where withholding orders should be sent, which is worth completing because it routes garnishment notices to the right person on your team.

You can report online with IDES credentials, submit the paper IDES new hire form by fax or mail, or send an electronic file if you are hiring in volume. The state directory feeds child support enforcement and unemployment insurance integrity checks, which is why mismatches between your new hire reports and your quarterly wage reports are a standard audit trigger.

Step 6: Put Workers’ Compensation Coverage in Force

Illinois requires workers’ compensation insurance from your first employee, and the state says so without qualification. The Illinois Workers’ Compensation Commission states that if you have one employee, even a part-time employee, you must obtain workers’ compensation insurance. The law reaches almost everyone who is hired in Illinois, injured in Illinois, or whose employment is localized in Illinois.

Coverage is not elective for staff. Sole proprietors, business partners, corporate officers and limited liability company members may elect not to cover themselves, but they have to notify the carrier of that intention in writing. That election covers the owner, never the employees.

Practically, this means the certificate of insurance has to exist before the start date. Buy the policy when you extend the offer, not when the employee arrives. If your first hire changes your class codes (an office-only business adding a driver or an installer), tell the carrier before the change rather than at renewal.

Step 7: Post the Required State and Federal Notices

Illinois has one of the longer poster lists in the country, and it comes from several agencies at once. The Illinois Department of Labor alone requires a set that covers wage payment, child labor, minimum wage, equal pay, victims’ economic security and one day rest in seven, plus separate standalone notices.

All of these are free downloads from the issuing agency. Nobody has to buy an all-in-one poster from a vendor, and the laminated bundle you get mailed offers is usually the same PDF you can print yourself. If part of your team is remote, distribute the notices electronically as well as posting them at the worksite.

Step 8: Onboard From Day One Through Day Ninety

Compliance puts the employee legally on your payroll. Onboarding decides whether they are still there in a year. Gallup reports that only 12% of employees strongly agree their organization does a great job of onboarding new employees, which is the gap that turns a signed offer into a repeat search three months later.

This is the part I automated first. In FirstHR, the offer goes out with e-signature, and the I-9, W-4, IL-W-4 and handbook acknowledgment all come back before day one, so the first morning is about the work instead of the folder.

The AI onboarding wizard turns the job description into a 30-60-90 day plan with assigned tasks, owners and reminders. FirstHR is an onboarding and HR platform, not a payroll provider, so it sits alongside whatever Illinois payroll setup you already run.

Illinois-Specific Rules That Change How You Hire

Illinois regulates the hiring process itself, not just the employment relationship that follows. Three rules touch the job posting and the interview before anyone is hired: pay transparency, the salary history ban, and the timing of criminal history questions. Get these wrong and the exposure starts before you have an employee. The full statute-by-statute picture lives in the Illinois compliance hub.

Pay Transparency in the Job Posting

The Illinois Equal Pay Act pay transparency requirement took effect on January 1, 2025 and applies to employers with 15 or more employees. A covered posting, internal or external, must include the pay scale and benefits for the role, and the rule reaches work performed at least partly in Illinois. A link to a current general benefits page satisfies the benefits half as long as it identifies the benefits for that specific job.

There is a second half people miss. When a covered employer publishes an external posting, it must announce the same opportunity to current employees within 14 days using its normal communication method. Employers must also keep posting, pay scale and benefit records for five years. Build both requirements into your job posting template rather than remembering them per posting.

Salary History Is Off the Table

The Illinois Equal Pay Act prohibits asking applicants about prior wages or using wage history to set pay or make hiring decisions, and it prohibits requiring employees to sign documents that stop them from discussing their own pay. The equal pay provisions apply to all Illinois employers, not just larger ones. Separately, private businesses with 100 or more employees in Illinois must obtain an Equal Pay Registration Certificate from the Department of Labor and submit wage and demographic data on a recurring cycle.

Criminal History Questions Come Late

Under the Job Opportunities for Qualified Applicants Act, an Illinois employer may ask about criminal record history only after the applicant has been determined qualified and notified that they have been selected for an interview, or, where there is no interview, after a conditional offer. Narrow exceptions exist where law excludes people with certain convictions, where a fidelity bond is required, and for licensed emergency medical services roles. The safe default is to keep the question out of the application entirely and handle it at the conditional offer stage, the same way a well-run ban the box process works everywhere else.

Leave, Rest Breaks and Retirement

The Paid Leave for All Workers Act gives Illinois employees paid leave they may use for any reason, with no requirement to explain the request. Workers earn one hour of paid leave for every 40 hours worked, and the statute caps what an employee earns in a year. The One Day Rest in Seven Act requires a minimum of 24 consecutive hours of rest in every consecutive seven day period, a meal period of at least 20 minutes for every 7.5 hour shift beginning no later than five hours into the shift, an additional 20 minute meal period for every additional 4.5 continuous hours worked, and reasonable restroom breaks.

Illinois also runs a state-facilitated retirement program. Employers that meet the statutory size and time-in-business thresholds and do not offer a qualified plan must enroll their workers, and the Illinois retirement mandate carries per-employee penalties for ignoring the deadline. Check where your business sits before your first hire, because the clock is tied to your headcount as reported to the state.

Chicago and Cook County Add Their Own Layer

Where your employee physically works decides which minimum wage and which paid leave ordinance applies. Illinois has three regimes: the City of Chicago, suburban Cook County, and the rest of the state. Chicago rules displace county rules, and some suburban municipalities have opted out of the county ordinance or set their own rate.

What the Chicago Ordinances Actually Require

Chicago sets its minimum wage by ordinance and raises it every July 1 according to the Consumer Price Index or 2.5%, whichever is lower. As of July 1, 2026 the rate is $17.05 per hour for employers with four or more employees, with a tipped rate of $12.96, and employers must make up the difference when wages plus tips fall short. Work performed under city contracts or concessionaire agreements carries a higher rate of $18.50.

The city’s Paid Leave and Paid Sick Leave ordinance covers any employee who works at least 80 hours for an employer in Chicago within any 120 day period. Accrual begins on the first calendar day after employment starts, and employees earn one hour of paid leave and one hour of paid sick leave for every 35 hours worked. Chicago also requires a posted notice and a written notice with the first paycheck and annually with a paycheck issued within 30 days of July 1.

Suburban Cook County runs a parallel system. The county minimum wage is $15.40 for non-tipped work and $9.25 for tipped work as of July 1, 2026, and the county paid leave ordinance provides at least one hour of paid leave for every 40 hours worked. Municipalities that passed their own ordinance follow their own rate, and some opted out of the county rules entirely, so confirm the specific village or city before you set pay for a suburban role.

Employee or Contractor: Illinois Uses a Three Condition Test

Illinois does not weigh a long list of factors for unemployment insurance purposes. It applies three conditions, and all three must be met before a worker counts as an independent contractor. Fail one and the worker is an employee, regardless of what the contract says or what the worker prefers.

Misclassification in Illinois is not a slap on the wrist. Delinquent unemployment insurance contributions carry interest at 24% per year, penalties apply for failing to report wages, and officers and employees of the business can be held personally liable for unpaid amounts. One finding also tends to produce several, because the same relationship is tested under more than one statute. IDES sets out the unemployment insurance consequences alongside the workers’ compensation penalties and the Employee Classification Act, and each of those regimes applies its own test to the same worker.

Construction carries an extra rule. Under the Employee Classification Act, individuals performing services for construction contractors are presumed to be employees unless the statutory criteria are met, and the Department of Labor can assess civil penalties on top of the tax consequences. If you are hiring trades, start from the presumption of employment and document your way out of it, not the reverse. The same logic applies when you are engaging 1099 workers in any industry.

The Mistakes That Cost Illinois Employers the Most

Every mistake below is a timing failure rather than a knowledge failure. The employer knew coverage was required. The policy just was not bound yet on the morning the employee started. These are the five I see repeatedly at small businesses making their first few hires.

The pattern is the same across all five: the obligation is known, the calendar is not managed. That is why a checklist with dates attached beats compliance knowledge at this scale. A founder who knows nothing about 820 ILCS 405 but who has a task due on day three and a task due on day 20 will outperform one who has read the statute and is busy running the business.

Frequently Asked Questions