Illinois Independent Contractor Laws and Healthcare Staffing

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Written by Aldo Zilli, Esq. Senior Manager, B2B Content, IntelyCare
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Filling nursing shifts in healthcare facilities is no easy task. Whether hiring nursing professionals for a hospital or a post-acute care facility, healthcare administrators are facing increasing nurse turnover and shortages combined with a heavy demand for nursing care. It’s an unsustainable situation, causing many facilities to turn to nurse staffing companies as part of the solution.

But working with staffing agencies, particularly those that hire nurses as contractors instead of employees, can bring its own set of challenges. This is especially true in Illinois. The state has been tightening many of its laws relating to the use of contractors for staffing generally — and the use of 1099 contractors for nurse staffing in particular — bringing the classification of agency nurses as either contractors or employees into the spotlight.

This article will look at Illinois independent contractor laws, nurse agency licensing laws, and the increasingly important question facing healthcare facilities in Illinois: W2 vs. 1099 nurses — which are right for your business?

Illinois Independent Contractor Laws at a Glance

Illinois independent contractor laws impact worker classification for nursing professionals. While the Illinois Employee Classification Act specifically applies to construction contractors, worker misclassification is also governed by other laws and court decisions in Illinois.

In 2022 the state updated its Illinois contractor laws to place stricter requirements on nurse contracting agencies, impacting how they classify their workers and the law was amended in 2023 with additional restrictions. Now 1099 nurse staffing agencies in Illinois face updated compliance mandates requiring them to act more like employers, challenging their ability to continue using 1099 nurses in the state.

Below is a chart breaking down the Illinois Nurse Agency Licensing Act (NALA) and its 2023 amendments, followed by useful information on how the stricter mandates can impact 1099 staffing and healthcare facilities across the state.

                      Illinois Independent Contractor Laws
Statute(s) 225 ILCS 510, et seq. (Nurse Agency Licensing Act)

Public Act 102-0946 (2023 Amendments)

Definitions Employee: A nurse or certified nurse aide.

Healthcare Facility: Any facility that’s licensed, certified, or otherwise approved by any state agency and subject to regulation under the Assisted Living and Shared Housing Act or the Illinois Public Aid Code.

Licensee: Any nurse agency that is properly licensed under NALA.

Nurse: A registered nurse, licensed practical nurse, advanced practice registered nurse, or anyone who is licensed under the Nurse Practice Act.

Nurse Agency: Any individual or legal entity that employs, assigns, or refers nurses or certified nurse aides to a healthcare facility for a fee, including nurse registries. However, this does not include:

  • Services provided by home health agencies licensed and operated under the Home Health, Home Services, and Home Nursing Agency Licensing Act
  • Certified individuals who provide their own services as a regular employee of a healthcare facility
  • A healthcare facility’s organizing of nonsalaried employees to provide services only in that facility
Licensing Requirements Section 4 (225 ILCS 510/4): No person can operate or advertise as a nurse agency unless the person is licensed under NALA. No healthcare facility can use the services of an unlicensed nurse agency.

Section 5 (225 ILCS 510/5): As part of their application for licensing, nurse agencies must submit, among other things:

  • Copies of all currently effective contracts with healthcare facilities
  • A statement detailing the experience and qualifications of the nurse agency applicant to operate a nurse agency
  • Evidence of an intent to comply with state or federal law relating to employee compensation to include social security taxes, state and federal income taxes, workers’ compensation, unemployment taxes, and state and federal overtime compensation laws
Supervisorial Responsibility Section 12 (225 ILCS 510/12): Healthcare facilities are responsible for supervising nurse agency employees assigned or referred to the facilities.

Section 13 (225 ILCS 510/13): Nurses or certified nurse aides employed, assigned, or referred to a healthcare facility by a nurse agency are deemed to be employees of the nurse agency while working for the nurse agency or on nurse agency employment and may only be terminated for cause.

Minimum Standards Section 14 (225 ILCS 510/14): Nurse agencies must meet certain minimum standards, which include:

  • Maintaining written policies and procedures, including personnel policies for nurses or certified nurse aides employed, assigned, or referred to healthcare facilities
  • Ensuring that its employees meet their minimum licensing, training, continuing education, and orientation standards
  • Paying no less than 100% of the hourly rate for a nurse or certified nurse aide directly to the nurse or certified nurse aide
  • Ensuring that a nurse serves as a manager or supervisor of all of the nurse agency’s nurses and certified nurse aides
  • Submitting copies of contracts with healthcare facilities to the Department of Labor within 5 days of execution
  • Providing quarterly reports to the Department of Labor for each healthcare facility that it contracts with
  • Not entering into non-compete covenants with nurses and certified nurse aides
  • Not recruiting potential employees on the premises of a healthcare facility

Section 14.3 (225 ILCS 510/14.3): Contracts between a nurse staffing agency and a healthcare facility must include, among other things:

  • A full disclosure of charges and compensation, including a schedule of all hourly bill rates per category of employee and a full description of administrative charges
  • A commitment that nurses or certified nurse aides referred to a healthcare facility perform all duties called for within their full scope of practice
  • A requirement that 100% of the nurse or certified nurse aide hourly rate is paid to the nurse or certified nurse aide
Enforcement Section 14.1 (225 ILCS 510/14.1): The Department of Labor can investigate any person suspected of violating NALA at any time and can receive complaints of violations. In addition:

  • Investigations of nurse agencies “shall take into consideration the responsibility of healthcare facilities under Section 12 for supervising nurse agency employees assigned or referred to the facilities.”
  • The Department of Labor can examine the premises of any nurse agency to ensure compliance.
Penalties Section 14.1 (225 ILCS 510.14.1): Civil penalties can total up to $10,000 per occurrence. Any nurse staffing agency that fails to pay 100% of the hourly wage rate identified in its contract with a healthcare facility shall be liable to the employee for the amount of the underpayment, plus damages of 5% of the amount of the underpayment.

Section 14.2 (225 ILCS 510/14.2): Willful violations of NALA or any efforts to obstruct an investigation under NALA can result in a Class A misdemeanor. Each day a violation of NALA continues constitutes a separate and distinct offense.

How Does NALA Impact Worker Misclassification in Illinois?

Illinois independent contractor laws create the risk of worker misclassification when a contractor’s work is more like that of an employee than a contractor. When that happens, the entity hiring the worker can be deemed an employer and required to pay minimum wages and overtime, unemployment insurance, workers’ compensation, employment taxes, and social security, among other employer-related requirements. In healthcare, misclassification could apply to both a nurse agency and the healthcare facilities that it staffs.

Because of the additional costs and responsibilities that come with hiring W2 vs.1099 nurses, nurse agencies with a 1099 model may try to find ways to maintain the classification of their workers as contractors. But to do that, they must establish a valid Illinois independent contractor agreement. Under that test, a worker is an employee unless the 1099 nurse agency can meet all three of the these conditions:

  1. The 1099 nurse is free from control or direction over their work (both in contract and in fact).
  2. The 1099 nurse performs services that are outside the usual course of the nurse agency, or the services performed are outside of all the nurse agency’s places of business.
  3. The 1099 nurse is engaged in an independently established trade, occupation, profession, or business.

With the 2022 updates to the Illinois Nurse Agency Licensing Act requiring 1099 nurse agencies to act more like employers, state agencies like the Illinois Department of Labor have wide authority to investigate and enforce the new compliance standards for nurse staffing agencies and apply the Illinois independent contractor test when warranted.

Healthcare Takeaways in the Illinois W2 vs. 1099 Debate

What does this change in Illinois independent contractor law mean for healthcare facilities? As both nurse agencies and healthcare facilities are required to strengthen their supervision of nursing professionals, there is an increased risk of legal and financial exposure when facilities use a 1099 nurse staffing agency in Illinois. Here are a few ways that facilities may be impacted:

  • A facility could be the subject of oversight and investigations by IDOL and other state agencies enforcing a public policy that increasingly disfavors 1099 nurse staffing in healthcare facilities.
  • A 1099 nurse staffing company that a facility has worked with in the past could end up losing its license or abandoning the state given the costs of compliance, leaving that facility with unfilled shifts.
  • As NALA requires facilities to more directly supervise any “1099 nurses” on their staff, they could be determined to be the employer of any such nurses, leaving them open to lawsuits for unpaid overtime or exposed to greater liability for workers’ compensation or medical malpractice claims, among other things.

It should be noted that as NALA’s tighter compliance mandates shape staffing standards to better match the W2 model — even requiring 1099 agencies to consider their nurses as “employees” — nurse agencies that are already structured to hire and manage nurses as employees don’t require an overhaul of their business model in order to comply.

Is There a Way to Staff Facilities Without Taking on Unnecessary Risk?

Changes to Illinois independent contractor laws may be a challenge for 1099 nurse staffing agencies. But, as a W2 staffing partner, IntelyCare has always had high standards when it comes to hiring and managing our nurse employees. Get past the Illinois W2 vs. 1099 debate and see how we can help your facility fill your shifts without the added risk.

Legal Disclaimer: This article contains general legal information, but it is not intended to constitute professional legal advice for any particular situation and should not be relied on as professional legal advice. Any references to the law may not be current, as laws regularly change through updates in legislation, regulation, and case law at the federal and state level. Nothing in this article should be interpreted as creating an attorney-client relationship. If you have legal questions, you should seek the advice of an attorney licensed to practice in your jurisdiction.