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IDES Audits: Don't Handle an Illinois Department of Employment Security Audit Without Careful Planning!

September 2009

By: Nancy E. Joerg, Esq.

najoerg@wesselssherman.com

In view of the hundreds of Illinois Department of Employment Security (IDES) audits I have handled over the years, companies, accountants, tax attorneys and others often ask me: "What are your top tips on handling IDES audits?" So, I have put together a handy checklist of my eight top strategy tips for handling IDES audits:

  • Be prepared for the audit and if necessary get a continuance. Don't assume that the date of the audit is set in stone. I have never heard of an IDES auditor who wasn't willing to continue the start date of the audit at least once. It is more important to be prepared than to start the audit on the date as first set.
  • Decide who is going to interact with the IDES auditor. The best person to interact with the auditor is the one who best understands the facts and issues - sometimes not the Company owner. The IDES auditor will usually suggest performing the audit on your company premises. This is not a good idea for a variety of reasons. Therefore, suggest to the auditor that the audit be conducted at your accountant's or attorney's office instead of the company premises. I have never yet known of an auditor who will not agree to this suggestion.
  • If this is a trucking IDES audit, become an "expert" on Section 212.1 of the Illinois Unemployment Insurance Act. Section 212.1 is the test for independent contractor status for truck owner-operators under Illinois unemployment insurance law. Do a self audit by filling out the Section 212.1 Questionnaire used by IDES auditors to help decide whether the trucker at issue is an independent contractor under Section 212.1.
  • If this is not a trucking IDES audit but rather an IDES audit involving other kinds of independent contractors such as mechanics, welders, dispatchers, computer consultants, et al., then you want to become an expert on Section 212(A), (B), and (C) which is the IDES test for independent contractor status used for almost all non-trucking categories. Obtain a copy of the Worker Relationship Questionnaire that IDES auditors usefor all situations under Section 212(A), (B), and (C). Also be aware that certain kinds of independent contractors (for example, newspaper delivery) have unique legal exemptions and tests. Careful legal research is essential.
  • Be cooperative with the auditor. Don't stonewall him or her. It is a mistake to believe that it is best to give as little information as possible. The opposite is the truth here. The burden of proof is on you, the Company being audited, to convince the auditor that the independent contractors at issue are not your employees. By stonewalling the auditor, you are almost ensuring you will fail in this task of carrying your burden of proof.
  • If you are claiming that any of the independent contractors at issue are corporations, check the Illinois Secretary of State's website: http://www.cyberdriveillinois.com/ and print out the detail showing the corporation is in "good standing."
  • If you have paid people not for services but for a "mere referral," then you have to be prepared to explain to the auditor that these are mere referral fees and not payment for services.

Moral of the Story... Get competent legal representation immediately in the face of an IDES audit, especially on the subject of independent contractor status. The same principles apply to IRS audits or workers' compensation insurance audits on the subject of independent contractor status. Get help immediately - as soon as you receive your Notice of Audit - and do not wait until you are in trouble and hit with an Assessment that you must protest before you really get your defense strategy and information in the proper order.

If any readers would like assistance with an IDES audit or hearing, or have any questions about strategy for IDES audits or hearings, please feel free to call Nancy Joerg at 630-377-1554.

FREE INFORMATION: If readers would like free information about Section 212(A), (B), and (C) [this is the section of the Illinois Unemployment Insurance Act pertaining to independent contractor status] or Section 212.1 [this is the section of the Illinois Unemployment Insurance Act pertaining to independent contractor truck owner-operators], please call Legal Assistant Tammy Nelson at 630-377-1554.