Chicago Ordinance

New Paid Leave Requirements for Chicago Employees Starting July 1 – What to Know and How to Prepare

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Authors Laura Friedel and Saman Haque

Effective July 1, 2024, employers will need to comply with new paid leave requirements that apply to all Chicago employees (including those who work from home from Chicago). The Chicago City Council passed the Paid Leave and Paid Sick and Safe Leave Ordinance (“Paid Leave Ordinance”) on November 9, 2023. Although the ordinance’s new requirements originally were slated to go into effect on January 1, 2024, an amending ordinance delayed the effective date for most obligations to July 1, 2024.

What changes take effect on July 1, 2024?

The Paid Leave Ordinance implements two separate requirements: (1) that employees earn up to 40 hours of paid leave for any purpose (“PTO”), and (2) that employees earn up to 40 hours of paid sick leave (“Paid Sick Leave”) per 12-month period. Under the ordinance, employees will accrue both PTO and Paid Sick Leave at a rate of at least one hour for every 35 hours worked. The Paid Leave Ordinance also requires that employers allow employees to carry over up to 16 hours of PTO and up to 80 hours of Paid Sick Leave each year, though employers may avoid the requirement to carry over PTO by “frontloading” the 40 hours of PTO each year (as described below).

Who is covered by the new rule?

The Paid Leave Ordinance applies to any employer with at least one employee, and to any employee who works at least 80 hours in Chicago during a 120-day period. Once an employee meets that threshold, they are deemed a “covered employee” for the duration of their employment with that employer.

Employers subject to a collective bargaining agreement with more generous paid time off should continue to comply with the collective bargaining agreement’s provisions.

What are the notice requirements?

Chicago employers must (1) post a notice of the new requirements, (2) adopt a written policy explaining PTO and Paid Sick Leave rights and responsibilities and share the policy with employees when they are hired, and (3) provide employees with PTO and Paid Sick Leave accrual and use information each pay period. Additionally, employers must provide a copy of their employment policies to workers with regular work duties in Chicago in the worker’s primary language. Finally, employers must give employees five calendar days’ notice of any changes to the PTO or Sick Leave policies and 14 days’ notice of any changes to other employment policies. Any required notices can be provided electronically with covered employees’ paychecks.

What are the requirements for employers with unlimited PTO policies?

If a Chicago employer has “unlimited” or “flexible” paid time off, the Paid Leave Ordinance requires that, at termination, they pay out 40 hours of PTO less any PTO the employee has used over the course of the previous 12 months. Employers with unlimited or flexible paid leave policies should make sure to track the use of paid time off by employees accurately to avoid paying out the full 40 hours. Employers who use an unlimited PTO policy should still give their employees notice of the law’s requirements and indicate “unlimited” on covered employees’ PTO statements.

How does the Paid Leave Ordinance impact employers with accrual-based PTO systems?

If an employer uses an accrual system, its employees must accrue both PTO and Paid Sick Leave at a rate of at least one hour for each 35 hours worked. Employers may cap accruals and use at 40 hours for each kind of leave in a 12-month period. Employers with an accrual system must allow employees to carry over up to 16 hours of PTO and up to 80 hours of Paid Sick Leave each year. Employers that use an accrual system must adopt a policy that explains the accrual rate.

What about employers with frontloading PTO systems?

Employers that frontload PTO and Paid Sick Leave must provide at least 40 hours of PTO and 40 hours of Paid Sick Leave at the beginning of each 12-month period. While employers who frontload don’t need to allow carryover of PTO into the new year, they still must carry over up to 80 hours of unused Paid Sick Leave (even though employees don’t have a right to use more than 40 hours in a year). Employers that frontload PTO and Paid Sick Leave should be aware that employees who quit early in the year will still be entitled to a payout for the full year’s allotment of PTO (or, if it is consolidated into a single bank, of the full bank).

How does the Paid Leave Ordinance impact employers outside Chicago?

The ordinance applies to Chicago employers and to employees of non-Chicago employers who physically work in Chicago for at least 80 hours in a 120-day period, including those working remotely.

Illinois employers outside of Chicago must comply with the Illinois Paid Leave for All Workers Act, which took effect on January 1, 2024. The Illinois Paid Leave for All Workers Act does not apply in Chicago or any other jurisdiction with an existing paid time off requirement. 

What should employers do to get ready for the new requirements?

Employers should:

  • Determine whether they will frontload or accrue for PTO and Paid Sick Leave.
  • Review existing policies to confirm compliance with the new ordinance and clearly explain how PTO and Paid Sick Leave will be handled.
  • Ensure payroll systems track and document time off availability and usage properly.
  • Confirm how notice will be provided each pay period.
  • Determine whether any employees who aren’t otherwise viewed as “Chicago employees” are physically present in the City of Chicago for work at least 80 hours in a 120-day period. If so, make sure they’re provided with the required PTO and Paid Sick Leave.
  • Update template separation letters to reflect new payment upon termination requirements.
  • Ensure your human resources team knows when and how PTO and Paid Sick Leave needs to be paid out.

LP’s Employment & Executive Compensation Group will host a webinar on the Chicago Paid Leave Ordinance on Thursday, May 2, 2024, from 11:00 am – 12:00 pm CDT. To register, click here.

Chicago Passes Sweeping New Paid Leave Ordinance

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Author Laura Friedel

Chicago recently passed one of the most expansive paid time off laws in the country, with significant changes and severe penalties for violations. Passed by the Chicago City Council on November 9, 2023, the Paid Leave and Paid Sick and Safe Leave Ordinance (“Paid Leave Ordinance”) takes effect on December 31, 2023, and significantly amends the current paid leave requirements.

The new Paid Leave Ordinance allows employees to earn up to 40 hours of paid leave for any purpose in a 12-month period (“PTO”) and up to 40 hours of paid sick leave in a 12-month period “(Paid Sick Leave”). Additionally, employers that accrue the time off (rather than frontloading it) must carry time over from year to year, and employers with more than 50 employees are required to pay employees out for unused PTO on termination – even if they use a flexible time off model. The new ordinance also imposes strict penalties for violations.

Who is covered by the new ordinance?

The Paid Leave Ordinance applies to any employer with at least one employee, though the requirement to pay for unused PTO on termination only applies to employers with more than 50 employees. “Covered employees” include domestic workers (regardless of whether they are employees or independent contractors) and any employees who work at least two hours in a two-week period for the employer while physically present in Chicago. Accordingly, the law may apply to remote workers who are physically present for work in Chicago occasionally.

If an employer is subject to a collective bargaining agreement with more generous paid time off provisions, the collective bargaining agreement continues to apply.

How does the Paid Leave Ordinance impact accrual and frontloading systems?

If an employer uses an accrual system, as of January 1, 2024, its employees will need to accrue both PTO and Paid Sick Leave at a rate of at least one hour for each 35 hours worked. Employers may cap accruals at 40 hours for each kind of leave in a 12-month period. Employers that use an accrual system must allow employees to carry over up to 16 hours of PTO and up to 80 hours of Paid Sick Leave each year (unused time off above those thresholds can be forfeited. Employers that use an accrual system must adopt a policy that explains the accrual rate.

Employers also have the option of frontloading PTO and Paid Sick Leave but providing at least 40 hours of PTO and 40 hours of Paid Sick Leave at the beginning of each 12-month period. While employers who front load don’t need to allow carryover of PTO into the new year, they must allow carryover of up to 80 hours of unused Paid Sick Leave. The downside of frontloading is that employees who quit in early January would be entitled to payout for the full year’s allotment, but we expect many employers will still use this approach to avoid the carryover requirement for PTO.

It’s important to note that with the December 31st effective date, employers that are not frontloading PTO and Paid Sick Leave on January 1, 2024 will need to carryover remaining balances from 2023 into 2024.

When can employees begin using their PTO and Paid Sick Leave?

Employers can require that new employees wait 30 days before they can begin using their accrued Paid Sick Leave and 90 days before using PTO. 

Can employers impose any advance notice requirements?

Employers subject to the Paid Leave Ordinance can still require employees to provide up to seven days’ advance notice for the use of PTO. They can also require seven days’ advance notice for any Paid Sick Leave that is foreseeable. Additionally, employers may require preapproval, within reason, for the use of PTO and documentation for Paid Sick Leave of more than three consecutive days.

Do employers need to pay out unused PTO and Paid Sick Leave when employment is terminated?

Employers are not required to pay out unused Paid Sick Leave upon termination, resignation, retirement, or other employment separation.

The payout rules for unused PTO differ depending on the size of the employer. Small employers (50 or fewer employees) are not required to pay out unused PTO, but medium employers (51-100 employees) must pay out 16 hours of PTO in 2024 and all accrued and unused PTO beginning in 2025. Most large employers (those with more than 100 employees) must pay out accrued and unused paid leave upon termination (or if an employee leaves Chicago).

If a Chicago employer has “unlimited” or “flexible” paid time off, the Paid Leave Ordinance now requires that, at termination, they pay out at least 40 hours of PTO less any PTO the employee has used over the course of the previous 12 months. Employers with unlimited or flexible paid leave policies should make sure to accurately track the use of paid time off by employees.

What notice requirements to employers have?

Employers must notify employees of the new law by doing the following:

  • Post a notice of employee rights in a conspicuous place at each facility and distribute the notice with the employee’s first paycheck (and annually in July after that).
  • Adopt a written policy explaining PTO and Paid Sick Leave rights and responsibilities and share the policy with employees when they are hired.
  • Provide employees with PTO and Paid Sick Leave accrual and use information each pay period.

Chicago employers must also maintain accurate records of each employee’s PTO and Paid Sick Leave use, among other information. The failure to keep these records creates a rebuttable presumption of a violation.

What are the penalties for violating the Paid Leave Ordinance?

Employers who violate the ordinance could face fines between $1,000-$3,000 for each offense, with each day of noncompliance deemed a separate offense. The penalties for notice violations are $500-$1,000 per violation.

Additionally, employees may pursue a private cause of action for violations, with possible damages of up to three times the amount of leave denied or lost, plus interest, costs, and attorney’s fees. However, private claims for PTO violations may not be brought until January beginning January 1, 2025. Employees can pursue private causes of action for Paid Sick Leave violations as soon as the ordinance takes effect on December 31.

How does the Paid Leave Ordinance align with the Illinois Paid Leave for All Workers Act?

Earlier this year, Illinois enacted the Illinois Paid Leave for All Workers Act, effective January 1, 2024. However, the new Illinois law does not apply in Chicago or in any other jurisdiction that had an existing paid time off requirement. 

What should Chicago employers do before the end of 2023?

Chicago employers should take the following steps immediately to make sure that they are in compliance by December 31st:

  • Determine whether you are going to frontload or accrue for PTO and Paid Sick Leave (you can treat them differently if you prefer) and if accruing, prepare for carryover from 2023 to 2024.
  • Review existing policies to ensure compliance with the new ordinance and clearly explain how PTO and Paid Sick Leave will be handled..
  • Make sure that their payroll systems are set up to properly track and document time off availability and usage.
  • Determine whether any remote employees are physically present in the City of Chicago for work at least two hours in a two-week period and, if so, make sure they’re included in the new policy.
  • Update template separation letters to reflect new payment on termination requirements and make sure team is aware that this needs to be paid out.

If you have any questions regarding Chicago’s new Paid Leave Ordinance or the Illinois Paid Leave for All Workers Act, please do not hesitate to reach out with any questions.

The Latest From Chicago: Anti-Retaliation, Fair Workweek, and Food Delivery Disclosures

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While warm weather has finally hit Chicago, Mayor Lightfoot, the City Council and Chicago Department of Business Affairs and Consumer Protection (BACP) have not taken a spring break. The below summarizes the latest ordinances, and regulations from the Windy City:

Anti-Retaliation Ordinance

The Chicago City Council passed the COVID-19 Anti-Retaliation Ordinance last week, which prohibits employers from retaliating against employees for obeying a public health order requiring an employee to stay home due to coronavirus.

The Ordinance prohibits employers from demoting or terminating a Covered Employee for obeying an order issued by the Mayor, the Governor of Illinois, the Chicago Department of Public Health, or, in the case of (2), (3), and (4) below, a treating healthcare provider, requiring the Covered Employee to:

  • Stay at home to minimize the transmission of COVID-19;
  • Remain at home while experiencing COVID-19 symptoms or sick with COVID-19;
  • Obey a quarantine order issued to the Covered Employee;
  • Obey an isolation order issued to the Covered Employee; and
  • Obey an order issued by the Commissioner of Health regarding the duties
  • of hospitals and other congregate facilities

Employees subject to demotion or termination may recover reinstatement, damages equal to three times the full amount of wages that would have been owed had the retaliatory action not taken place, actual damages, and attorneys’ fees. Violations may also lead to fines of up to $1,000 per offense per day.

The ordinance is effective immediately.

Fair Workweek Ordinance

Chicago’s Fair Workweek Ordinance is set to take effect on July 1, 2020. Ahead of the effective date, the BACP has issued rules for implementing the ordinance, and a supplemental rule for implementation during the pandemic.

The Ordinance requires covered employers to post work schedules at least 10 days in advance, and provide additional pay if work schedules are changed without advanced notice. However, the Ordinance creates an exception where the work schedule change is “because of” a pandemic. BACP’s supplemental rule clarifies that the COVID-19 outbreak qualifies as a “pandemic” for the purposes of this exception, and will remain a “pandemic” until the Mayor’s Executive Order declaring a state of emergency is repealed.    

However, a work schedule change will be considered “because” of the pandemic only when the pandemic causes the employer to materially change its operating hours, operating plan, or the goods or services provided by the employer, resulting in the work schedule change. Further, the exception applies only to the work schedule during which the change occurs, and the work schedule immediately following.

Additionally, while the substantive requirements of the Ordinance will still go into effect on July 1, 2020 and may still be enforced by the City, individual employees will not be allowed to file lawsuits for violations of the ordinance occurring before January 1, 2021.

New Rules for Third Party Food Delivery Companies

Mayor Lightfoot and the BACP announced new rules earlier this month for third-party food delivery companies to increase transparency and fair competition. Effective Friday, May 22nd, all third-party delivery companies must disclose the following to customers, in a “clear and conspicuous manner”:

  • the menu price of the food;
  • any sales or other tax applied to the transaction;
  • any delivery charge or service fee, imposed on or collected from the customer by the third-party food delivery service or by the covered establishment, in addition to the menu price of the food;
  • any tip that will be paid to the person delivering the food, and not to the third-party food delivery service, to be added into the transaction when it occurs, and
  • any commission associated with the transaction.

The disclosure requirements apply to all websites, mobile applications or other internet services that offer or arrange the sale of food or beverages by a restaurant, bar or other food-serving establishments. The measure is intended to promote transparency and fair competition, as many restaurants are increasing relying on third-party delivery services to stay afloat during the pandemic.

While the rules were promulgated in response to the pandemic, these new rules will be in place permanently.

Guidance for Restaurants Applying COVID Surcharges

The City of Chicago issued a guidance for restaurants charging COVID-related surcharges to customers, reminding restaurants that the City’s restaurant tax is .50%, and any surcharge customers are required to pay is considered taxable and should be included in the basis upon which the restaurant tax is calculated. Additionally, a COVID surcharge is not a tax and should not be designated as such on any price list or invoice.