By: Nancy Joerg, Esq.
Many companies that use independent contractors do not realize that under the Illinois Unemployment Insurance Act, there are many specific tests for various kinds of independent contractors. [Even the Illinois Department of Employment Security (IDES) auditors do not always know all of the different tests for independent contractor status and exemptions from employment!]
It is essential that a company know the specific test for the type of independent contractor used so that it can gather the necessary proof to establish independent contractor status if it is ever audited by the IDES.
The following is a list of some (but not all) of the independent contractor tests under the Illinois Unemployment Insurance Act:
1. Persons free from the employer's control and direction who are engaged in an independent trade, occupation, business or profession and who perform services which are outside the course of the employer's business or performed outside the place of business. (Section 212)
2. Owner-operators of their own trucks but only under certain specified circumstances as provided in the Act. (Section 212.1)
3. Direct sellers of consumer goods outside of a retail establishment if the remuneration for such service is directly related to sales, rather than hours worked, and the services are performed pursuant to a written contract that provides that the person shall not be treated as an employee for federal tax purposes. (Section 217)
4. Real estate salesmen to the extent that such services are compensated for by commission. (Section 217)
5. Real estate closing agents when their contract with the title insurance company specifies that they are not employees and they are paid on a per closing basis. (Section 217.1)
6. Real estate appraisers whose written employment contract provides that they are paid on a fee per appraisal basis and that they are free to accept or reject appraisal requests from that entity or from other entities. (Section 217.2)
7. Persons under the age of 18 who deliver newspapers or shopping news and any persons who deliver newspapers or shopping news to the ultimate consumer, if substantially all of their remuneration is on a "per piece" or output rather than an hourly basis and they work under written contracts that indicate they are not to be treated as employees for federal tax purposes. Freelance editorial and photographic work for newspapers is also exempt from employment. (Section 225)
8. Insurance agents who are paid solely by commission. (Section 228)
9. Golf caddies if they are full-time students under the age of 22 and are paid directly by a golf club member or by the golf club on behalf of a member. (Section 232.1)
In most situations, the services of actors, actresses, singers, musicians, models and other "talent" constitute employment, not independent contractor status. However, a talent or modeling agency that is licensed under the Private Employment Agency Act is not the employing unit with respect to the performance of services for which an individual has been referred by the agency. (Section 204)
Another tip: Some of the payments that a company makes to individuals are really just payments for referral fees or reimbursement of expenses. These payments should not be considered wages. Be sure to point this out to the auditor. The auditor could overlook this referral fee issue and consider these kinds of payments to be wages and therefore payments to employees.
If the company does not claim the exemption from employment, the auditor may not necessarily bring it up because s/he may feel it is up to the company to raise a legal defense or because s/he simply is not aware of an exemption.
The moral of the story here is to look over the kinds of independent contractors you use and be ready to prove these exemptions when and if you are audited. If you prove the exemptions, then of course you will not owe any back unemployment insurance contributions (taxes) on these workers.
Questions? Please contact WS Shareholder and Senior Attorney Nancy E. Joerg at (630) 377-1554, or firstname.lastname@example.org.