A Guide to PEO in Illinois

Employers in Illinois are continuously seeking efficient ways to navigate the state’s detailed and ever-changing labor and employment laws. This is where professional employment organizations (PEOs) can help, especially for CFOs and Finance teams who are managing compliance alongside core financial duties.

Read on to learn more about the process and benefits of using a PEO in Illinois.

The benefits of partnering with a PEO in Illinois

A PEO is a third-party entity to which your organization can outsource a wide range of employee management tasks. These include—but aren't limited to the following factors: 

Cost-savings and efficiency gains in HR

Outsourcing tasks to a PEO can boost the efficiency and cost-effectiveness of your HR operations. For example, PEOs often reduce costly labor hours by using sophisticated HR technology platforms that automate and simplify payroll processing, track payroll spending, and provide real-time analytics. This also allows your team to focus on strategic planning and analysis rather than repetitive and time-consuming administration. 

Using a PEO is often more cost-effective than hiring a team of full-time HR staff, and offers a pricing model that is predictable month-over-month, which can help limit unforeseen costs. 

Access to localized expertise

Small businesses and startups are often unable to afford in-house payroll and HR expertise that covers every state. With a PEO, they gain access to extensive local knowledge and resources that would typically be out of reach. This includes support with: 

• Compliance with state and federal laws and regulations
• Payroll and tax withholding and filing
• Benefits administration
• Reporting
• Recruitment and hiring
• Onboarding employees
• Worker classification
• Unemployment and workers’ compensation claims
• Workplace policies
• Data privacy

Collaboration with a PEO empowers HR teams, CFOs, and Finance departments to make compliant and strategic decisions based on localized expert insights.

Affordable employee benefits plans

Attractive benefits packages support your acquisition and retention of top talent. Because PEOs co-employ a large number of employees, they're able to offer client companies competitive rates on benefits, such as health insurance, life and disability insurance, and retirement plans. PEOs help Illinois companies of all sizes compete with the comprehensive employee benefits packages and perks that larger corporations offer.

PEO services also allow you to continue working with your existing benefit providers while offloading many of the compliance and administrative tasks. 

Stronger compliance and protection from legal liabilities

When you partner with a PEO, you enter into a co-employment relationship. You offload legal liabilities and compliance risk to the PEO for payroll, employment tax, labor laws, and more. You remain responsible for the day-to-day management of your workforce.

A PEO assumes responsibility for ensuring compliance with federal requirements and state-specific legislation in Illinois. This protects your organization from the potential financial, reputational, and legal repercussions of non-compliance with payroll, employment, and labor laws in Illinois.

Payroll, employment, and labor laws in Illinois

Employers in Illinois must comply with the federal employment regulations and contributions stipulated in the Fair Labor Standards Act (FLSA), such as federal unemployment tax, unemployment insurance, social security taxes, and Medicare taxes. Additionally, Illinois has specific regulations about leave and paid time off, union rights, and other labor laws. 

A PEO can streamline your organization’s compliance with the following legislation, and more:

Payroll and benefits laws

Minimum wage

In Illinois, the standard minimum wage is set at $15.00 USD per hour in 2025 for employees aged 18 and older. In the case of employees who receive tips, employers are allowed to pay 60% of the minimum wage. This equates to $9 per hour in 2025. The minimum hourly wage for under 18s working less than 650 hours per calendar year is $13 per hour in 2025.

Overtime

Overtime compensation for non-exempt employees is mandatory in Illinois after 40 hours of work per week. It must be calculated at one and a half times the normal rate of pay. Salaried workers aren't automatically exempt from overtime pay, as their primary duties must also meet certain criteria. 

Paid time off

Under the Paid Leave for All Workers Act, Illinois employees accumulate one hour of paid leave for every 40 hours worked. Your employees are entitled to accrue up to five days of paid leave per year, to use as they please and without justification. Exemptions for specific worker categories and employers with pre-existing policies may apply.

Income tax

Effective July 1, 2017, the income tax rate in Illinois is 4.95%. Illinois' flat income tax system means everyone pays the same rate, regardless of income level. The state also has some of the highest sales and property taxes in the country.

Paydays and pay periods

In Illinois, employees must be paid at least semi-monthly. Additionally, there are monthly payday requirements for executive, administrative, and professional personnel.

Final paychecks

All final compensation, including bonus payments, vacation pay, wages, and commissions must be paid on your next regularly scheduled payday.

Pay transparency laws

In 2025, employers with 15 or more employees in Illinois must include pay ranges in job postings. This requirement is part of an amendment to the Illinois Equal Pay Act (Public Act 103-0539).

Pay stubs

As part of the Public Act 103-0953, employers in Illinois are required to keep a copy of an employee’s pay stub for a period of three years from the data of payment. Companies are mandated to keep this record regardless of whether or not the employee is still working with them. Pay stubs must include details of hours worked, pay rates, overtime pay, and deduction from wages.

Labor laws

Workers’ compensation insurance

Illinois employers must provide workers' compensation insurance for almost every employee (exemptions apply) to give them financial assistance in the event of work-related injuries or occupational diseases.

Employers must purchase insurance or seek permission to self-insure, or face severe penalties for non-compliance, from a minimum of $10,000, and up to $500 per day of non-compliance. Fines are deposited into the Injured Workers’ Benefit Fund (IWBF) and are used to finance benefits for eligible, uninsured employers’ injured employees and their medical providers. 

A PEO ensures your organization meets Illinois’ specific requirements and reduces your risk of any penalties for non-compliance, which can have drastic repercussions for your organization and its corporate officers. 

For example, on an individual level, corporate officers in Illinois who negligently fail to obtain worker’s compensation are committing a Class A misdemeanor, and those who knowingly fail are guilty of a Class 4 felony. Your organization’s corporate officers may also be held personally liable for any unpaid penalties. 

On an organizational level, employers that knowingly fail to obtain worker’s compensation insurance may be issued a work-stop order to cease all business operations until they provide proof of insurance. They also lose their protections under the Workers' Compensation Act, so can be sued for unlimited benefits in civil court by injured employees, and must prove they didn’t behave negligently.

Worker safety regulations

Worker safety in Illinois is regulated by IL OSHA, which enforces standards, offers training, and covers state and local workplaces. Private sector and federal workplaces fall under federal OSHA, while whistleblower protections exist for reporting unsafe conditions.

Meal breaks and rest periods

Illinois employees who work 7.5 hours continuously are entitled to a break of at least 20 minutes. This should be taken within 5 hours of their start time. Additionally, an extra 20-minute meal break must be allowed if the employee is working a 12-hour shift or longer. Exemptions and exclusions apply.

Employees working as hotel room attendants in Illinois counties with 3 million inhabitants or more are entitled to a half-hour meal period and two paid rest periods of 15 minutes when working 7 hours or more in one workday.

Child labor laws

Children under 14 are generally not permitted to work, except under specific conditions. For ages 14 and 15, employment is allowed if:

An employment certificate is issued by the school district and filed with the Department of Labor

• The job doesn't interfere with the minor's education and isn't deemed hazardous
• Work hours are limited to 3 hours on school days, 8 hours on non-school days, and no more than 48 hours per week
• Work is only allowed between 7 a.m. to 7 p.m. during the school year and until 9 p.m. from June through September
• A 30-minute meal period is required no later than the fifth hour of work

Violent crime victims' leave

Employees who are victims of domestic, gender, or sexual violence, or other crimes of violence, or have family members who are victims, are entitled to up to 12 weeks of unpaid leave during a 12-month period. 

Employment laws

At-will employment

Illinois is an "employment-at-will" state, meaning that an employer or employee may terminate the relationship at any time, without any reason or cause. However, the employer cannot discriminate based on race, color, religion, sex, national origin, ancestry, citizenship status, age, marital status, physical or mental handicap, military service, or unfavorable military discharge.

Worker classification laws

The Illinois Worker Classification Laws, specifically the Employee Classification Act (ECA), address the improper classification of workers in the construction industry. The ECA covers both public and private construction and sets standards for determining whether a worker is an employee or an independent contractor. It imposes penalties for misclassification and provides rights and benefits to misclassified workers. 

Discrimination

The Illinois Human Rights Act prohibits employment discrimination in all terms and conditions of employment. This includes hiring, firing, layoff, harassment, selection, promotion, demotion, performance evaluation, transfer, pay, tenure, discipline, working hours, vacation, sick leave, seniority, and union representation. 

The Act protects against discrimination based on specific protected classes, which include: race, color, religion, sex, sexual harassment, national origin, ancestry, age (40 and over), sexual orientation, gender identity, disability, pregnancy, arrest record, citizenship and immigration status, and military status.

Non-compete agreements

The Illinois Freedom to Work Act states that no employer shall enter into a covenant not to compete with any employee unless the employee's actual or expected annualized rate of earnings exceeds $75,000 per year. This amount will increase to $80,000 per year beginning on January 1, 2027, $85,000 per year beginning on January 1, 2032, and $90,000 per year beginning on January 1, 2037.

Equal pay

Employers must pay equal wages to men and women performing the same or substantially similar work, unless wage differences are based on a seniority system, a merit system, or factors other than gender. It's prohibited for employers and employment agencies to inquire about an applicant's past wage and compensation histories.

A PEO can compliantly navigate complex Illinois regulations on behalf of your organization to manage your workers’ compensation insurance, wages, overtime payments, and more. Visit the Illinois Department of Labor website for further guidance on Illinois’ wage, overtime, and insurance requirements.

Choosing the right PEO for your organization

The following steps will help you select the PEO that best aligns with your business’s ​current and future requirements.

1. Define your business needs and goals

Begin by conducting a thorough analysis of your current and projected HR-related expenditures, identifying areas where a PEO could offer savings or efficiencies. This includes understanding your needs for payroll management, benefits administration, HR compliance, workers’ compensation, and risk management, as well as considering how these services can scale with your company’s growth.

2. Research PEOs with Illinois expertise

Focus your search on PEOs that have a strong presence and a proven track record in Illinois. Look for case studies, client testimonials, and examples of their success in navigating the state’s complex labor laws and business environment.

3. Evaluate the range of services and quality of benefits

Examine the PEO’s offerings to ensure they meet your company’s specific needs. Assess the quality and cost-effectiveness of the benefits packages provided and whether the PEO offers customizable solutions that can adapt to your company’s changing requirements.

4. Assess compliance and risk management capabilities

Understand the PEO’s approach to managing continuous compliance with Illinois labor laws and their capacity to mitigate risks related to employment practices and workplace safety. This step is crucial for reducing potential liabilities and ensuring regulatory compliance.

5. Check customer service and support

Evaluate the PEO’s reputation for customer service and support. Consider their responsiveness, the availability of dedicated support teams, and the quality of HR technology platforms they use for managing employee services. High-quality, responsive customer service is essential for a smooth partnership.

6. Review and negotiate the contract

Carefully review the PEO contract to understand all terms, conditions, fees, and exit clauses, with the help of legal advisors if necessary. Compare its pricing structure with other PEOs, whether you pay a fixed monthly fee per employee or a percentage of the overall payroll. It’s important to negotiate terms that serve your company’s interests, ensuring flexibility, transparency, and a clear understanding of responsibilities. 

7. Plan for implementation and transition

Prepare for the transition to the PEO by communicating changes to your employees, integrating systems, and setting up processes for ongoing collaboration with the PEO. Effective planning and communication are vital to minimize disruption and ensure a successful partnership.

See also: How to Choose a PEO or US Payroll Provider: 9 Questions to Answer

Manage your Illinois, US, and global workers with Deel

Deel makes payroll and HR management easy, whether you’re hiring in one state, across the country, or around the world. 

As your PEO*, Deel takes care of payroll, HR, and benefits administration while ensuring state tax compliance and handling sensitive issues. We provide:

• Expert payroll administration
• Access to benefit plans from leading carriers and benefits administration
• Robust HRIS with free IT, Finance, and PTO management
• State-specific trainings, HR policies, and on-demand HR support
• Advanced tax and benefits compliance
• And more

Book a demo to learn more about using Deel’s PEO in Illinois.

*Provided by Deel PEO US, LLC, Deel Employment Services, LLC, or through Deel's partnership with licensed providers where required.