Illinois companies naturally are quite concerned when they suddenly receive an official letter from the Illinois Department of Employment Security (IDES) telling them that they have been "selected for audit." This article addresses five of the most common questions I get from clients who are facing an IDES audit of their company:
Question 1: How does the IDES define an independent contractor?
Answer to Question 1: Illinois uses a strict three-part test [Section 212(A), (B), (C) of the Illinois Unemployment Insurance Act], with the presumption being that the independent contractor is a misclassified employee for whom the company must pay unemployment compensation taxes. The test is commonly referred to as the "A-B-C Test."
Question 2: What exactly does the A-B-C Test require to prove that a worker is really an independent contractor and not an employee?
Answer to Question 2: Section 212(A), (B), (C) states "Service performed by an individual for an employing unit, whether or not such individual employs others in connection with the performance of such services, shall be deemed to be employment unless and until it is proven in any proceeding where such issue is involved that -
- A. Such individual has been and will continue to be free from control or direction over the performance of such services, both under his contract of service and in fact; and
B. Such service is either outside the usual course of the business for which such service is performed or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and
C. Such individual is engaged in an independently established trade, occupation, profession, or business."
Question 3: Is there a special IDES definition for independent contractors who both own and drive trucks?
Answer to Question 3: Yes. Section 212.1 of the Illinois Unemployment Insurance Act.
Question 4: What is the independent contractor test under Section 212.1?
Answer to Question 4:
Sec. 212.1. Truck Owner-Operator
(a) The term "employment" shall not include services performed by an individual as an operator of a truck, truck-tractor, or tractor, provided the person or entity to which the individual is contracted for service shows that the individual:
(1) Is either:
(i) Registered or licensed as a motor carrier of real or personal property by the Illinois Commerce Commission, the Interstate Commerce Commission, or any successor agencies, or
(ii) Operating the equipment under an owner-operator lease contract with the person or entity, when the person or entity is registered, licensed, or both, as a motor carrier of real or personal property licensed by the Illinois Commerce Commission, the Interstate Commerce Commission, or any successor agencies; and
(2) Has the right to terminate the lease contract and thereafter has the right to perform the same or similar services, on whatever basis and whenever he or she chooses, for persons or entities other than the person or entity to which the individual is contracted for services;
(3) Is not required by the person or entity to which the individual is contracted for services to perform services, or be available to perform services, at specific times or according to a schedule or for a number of hours specified by the person or entity, provided that pickup or delivery times specified by a shipper or receiver shall not be deemed specified by the person or entity;
(4) Either leases the equipment or holds title to the equipment, provided that the individual or entity from which the equipment is leased, or which holds any security or other interest in the equipment, is not:
(i) The person or entity to which the individual is contracted for service, or
(ii) Owned, controlled, or operated by or in common with, to any extent, whether directly or indirectly, the person or entity to which the individual is contracted for services or a family member of a shareholder, owner, or partner of the person or entity;
(5) Pays all costs of licensing and operating the equipment (except when federal or State law or regulation requires the carrier to pay), and the costs are not separately reimbursed by any other individual or entity; and
(6) Maintains a separate business identity, offering or advertising his or her services to the public, by displaying its name and address on the equipment or otherwise.
Question 5: How far back in time can the IDES auditor go in his investigation?
Answer to Question 5: If a company is audited by the IDES, an auditor can audit the company for a maximum of four years. However, the usual practice by an IDES auditor is to audit only one year if the assessment owed is less than $5,000.
Questions about how to handle an IDES audit? Please contact WS Shareholder and Senior Attorney Nancy E. Joerg at 630-377-1554 or firstname.lastname@example.org.