The Illinois Department of Labor (IDOL) has published the final regulations interpreting the Illinois Paid Leave for All Workers Act (the “Act”) which took effect four months earlier on January 1, 2024. The final regulations took effect immediately on April 30, 2024. In the regulations, IDOL has backed off from some of the positions taken in the initial set of proposed regulations from November 2023, but has re-affirmed other interpretations of the Act. The regulations also include a number of examples to help clarify the meaning and impact of these rules. Since it is likely that Illinois employers already made compliance decisions for January 1, they should revisit their policies and procedures to ensure that their selected approaches are still warranted in light of the final regulations.

Qualifying Pre-Existing Paid Leave Policies

The Act includes broad carveout language for employers with pre-existing paid leave policies that provided employees at least 40 hours of paid leave (or the prorated equivalent) and offered employees the option, at their discretion, to take paid leave for any reason. If an employer’s policy meets these qualifications, the Act indicates that the employer would not need to modify its paid time off policy to comply with the Act. 820 ILCS 192/20(b).

The proposed regulations suggested that, to be considered a qualifying pre-existing policy, it needed to provide at least 40 hours of paid leave to “all” employees. In the final version of the regulations, however, IDOL has clarified that the policy must satisfy the minimum amount of leave required by the Act. The impact here is twofold. First, a policy could qualify as a pre-existing paid leave policy even though part-time or temporary employees do not receive at least 40 hours of paid leave per year, so long as the amount of time that they do receive satisfies the proration requirements of the Act (one hour for every 40 hours worked). Second, to maximize flexibility, an employer can lawfully maintain two paid leave policies – a pre-existing PTO policy for a portion of its workforce, and a statutory leave benefit for the PTO-ineligible employees.

The final regulations stipulate that a pre-existing policy must have been enacted prior to January 1, 2024, and have been in effect on January 1, 2024, to qualify. However, employers may modify their pre-existing policies after January 1 so long as they still provide the minimum amount of time required by the law.  The final regulations do not seem to contemplate any ability for employers to retroactively adjust their policies now that they have the benefit of this guidance.

The final regulations included examples on pre-existing paid leave policies that shed additional light for employers on the scope of this carveout. Key takeaways from those examples include:

• The paid leave benefit can be called “vacation” so long as the time is usable for any reason.

• A policy that requires advance notice and manager pre-approval would still qualify so long as the leave could be taken for any reason.

• A paid sick time policy could qualify so long as the employer modified the policy prior to January 1, 2024, to allow use of the paid sick time for any reason.

Accrual and Carryover of Paid Leave

Employers will be relieved to see an adjustment in the final regulations on the issues of both accrual and carryover.

The Act requires that paid leave accrue at a rate of one hour for every 40 hours worked.

Per the proposed regulations, the calculation must be made on a fractional basis based on 15-minute work increments. For example, if an employee worked 75 hours in a biweekly pay period, they would accrue 1.875 hours of paid leave. However, the proposed regulations required that work periods of fewer than 15 minutes be rounded up to 15 minutes, meaning that employees would have accrued leave faster than the Act requires. While IDOL reaffirmed the requirement for fractional accrual in the final regulations, it has resolved the rounding issue, clarifying that “work periods must be counted on a minute-by-minute basis or may be rounded up to the next 15 minutes. An employer may not round down time worked.”

If an employer provides paid leave to employees by accruing the time (compared to frontloading), the Act requires carryover of accrued but unused leave from one 12-month period to the next. However, the Act was silent on whether employers could ever impose a carryover cap. The final regulations confirm that a 40-hour carryover cap can be imposed by employers through a valid written policy (consistent with the other provisions of the Act and final regulations). (Employers should, however, make note of the policy requirements highlighted below.)

Frontloading Paid Leave

Employers frontloading paid leave in lieu of accrual also received some welcome news through the final regulations:

• The frontload grant can be reduced for part-time employees at a pro rata amount consistent with the employee's anticipated work schedule for that year; and

• The frontload grant can be reduced for mid-year hires at a pro rata amount consistent with the employee's anticipated work schedule for that year.

When calculating the pro rata amount, employers should ensure that the number of hours is not less than what the employee would be entitled to earn at a rate of one hour for every 40 hours worked, during the time period at issue.

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 final regulations still do not resolve the issue, and instead simply state: “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 unless the employer allows them to carry their paid leave time over. See Section 15(c) of the Act.”

The final regulations confirm that the employer may provide some of its employees paid leave in the form of frontloading, and other employees paid leave via accrual.

Using Paid Leave

Under the Act, employees can determine how much paid leave they want to use, except that employers may set a minimum increment of at least two hours per day. The proposed regulations originally indicated that employees could use their paid leave in minimum intervals of one hour, so long as they used at least two hours in a single workday. In the final regulations, IDOL removed the provision about one-hour minimum intervals of leave but did retain the example on point, suggesting that this remains their interpretation of the law:

Example: Employee C's children's before and after school care is canceled. Employee C's employer requires a minimum usage of two hours of paid leave per day. Employee C may take one hour of paid leave in the morning and one hour of paid leave in the afternoon to do drop-off and pick-up.

Not only are employees entitled to determine how much time they need to use to cover the absence, but the final regulations reaffirm that it is the employee’s choice whether and when to apply paid leave to an absence in the first instance.

Example: Employee A has accrued a sufficient number of hours under the Act to take a paid leave day. Employer A has scheduled a business closure for a major holiday. In the past, Employer A has allowed employees to choose whether to go unpaid for that holiday, or to use paid leave time available to them. Employer A may not require Employee A to use their accrued paid leave hours for the holiday closure.

Employers should note that – if the employee has more than one type of leave available to cover an absence – IDOL directs that the employer “should” confirm and document which category of leave the employee wishes to draw from.

Limited Situations in Which Paid Leave Requests Can Be Denied

The final regulations have also modified the terms and conditions under which employers can deny an employee’s request for paid leave. The proposed regulations outlined a standard where the permissibility of the denial hinged on relevant factors like whether the employer provides a need or service critical to the health, safety, or welfare of the people of Illinois and whether granting leave during a particular time period would significantly impact the business operations due to the employer's size. The final regulations adopt an approach that leaves more discretion to the employer. An employer may now deny a request for paid leave if all of the following conditions are met:

1. The employer's policy for considering leave requests under the Act, including any basis for denial under this Section is disclosed to the employee, in writing, consistent with this Section; and
2. The employer's paid leave policy establishes certain limited circumstances in which paid leave may be denied in order to meet the employer's operational needs for the requested time period; and
3. As a matter of fact, the employer’s policy is consistently applied to similarly situated employees and does not effectively deny an employee adequate opportunity to use all paid leave time they are entitled to over a 12-month period.

Initially, IDOL proposed that an employer must provide to the employee and maintain a record of each request that was denied and the reason for the denial. Instead of this employee notification requirement, the final regulations incorporate into an employer’s recordkeeping requirements an obligation to maintain records of all requests by an employee to use paid leave that were denied.

Rate of Pay

Under the Act, “[e]mployees shall be paid their hourly rate of pay for paid leave.” In its proposed regulations, for some employees, IDOL intended to require a “regular rate of pay” calculation. IDOL has removed all references to “regular rate” in the final regulations, which now track the Act nearly verbatim, confirming that employees are paid their hourly rate of pay when taking paid leave time.

Employer Notice Requirements

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

• Notice/Workplace Poster: 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. Per the final regulations, the notice must be provided in English and, if a “significant percentage” of workers are not literate in English, in any other language commonly spoken in the workplace.

• Define 12-Month Period: Designate in writing to the employee at time of hire the 12-month period used for paid leave.

• Policy: Provide a written policy if the employer imposes terms and conditions on employees' use of paid leave (such as notice requirements). Per the final regulations, the policy must be made available in English and in any additional language commonly spoken by the employer's workforce.

• Certain Changes to Employer’s Leave Policy:
  
  • Communicate in writing a change to an employee’s requirement to notify the employer before taking paid leave time within five calendar days after the change.
  • Notify employees in writing of any changes to the 12-month period. The notification must also include documentation of the balance of hours worked, paid leave accrued and taken, and the remaining paid leave balance.
  • Notify employees in writing of any changes to the employer’s leave policies that affect an employee’s right to final compensation for such leave.

The final regulations create several other notice obligations for employers:

• Notice that PTO Policy Used for Compliance: If an employer chooses to credit the paid leave provided for under the Act to an existing paid leave allowance provided by the employer, such policy must be communicated to the employee within 30 days after the start of employment or of the effective date of the policy.

• Initial Notice of Frontloading: If an employer chooses to frontload paid leave in lieu of accrual, the employer must give written notice to the employee informing the employee of how many paid leave hours that employee is receiving on or before the first day of initial employment or on or before the first day of the initial 12-month period. The rules do not clarify whether this notice requirement can be satisfied vis à vis providing the employer’s written paid leave policy, or if it requires affirmative notification to the employee of their particular frontloaded benefits.

• Other Changes to Employer Policy: If an employer changes its paid leave policy, it must notify the employee of the updated paid leave policy as soon as practical.
  
  • If the changes relate to a switch from frontloading to accrual, the employer must give at least 30 days’ notice prior to the end of the 12-month period.
  • If an employer changes the amount of frontloaded leave that will be provided, the employer must give written notice to the employee informing the employee of how many paid leave hours that employee is receiving on or before the initial 12-month period.

Finally, it is important to note the absence of regulations on the following topics, which were included in the initially proposed regulations:

• Paystub Reporting Requirement Nixed: The final regulations do not contain any paystub reporting requirements. As originally proposed, the regulations would have required employers to report employee’s paid leave accrual and remaining balance on each paystub and provide these records to the employee upon request. However, IDOL has stricken any indication that the balance tracking must be actively reported to employees before the records are requested.

• Customized Notice Requirement Abandoned:  The proposed regulations initially proposed a requirement that employers post “[a] statement, written by the employer, summarizing the employer's written paid leave manual, handbook, or policy, if the employer has one, including how an employee may receive a copy of such document.” This language has been stricken from the final regulations, and the posting requirements have reverted to the IDOL-issued notice, as outlined above.

Next Steps

Because the final regulations took effect immediately on April 30, 2024, employers should prioritize evaluating whether any further adjustments are needed to their paid time off policies in Illinois.