Chicago Passes Sweeping New Paid Leave Ordinance

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 31^st:

• 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.