By: Nancy E. Joerg, Esq.
A small Illinois carpet company (and a client of our law firm) was audited by the Illinois Department of Employment Security (IDES) for the year 2011. Happily, some of its installers were found by the auditor NOT to be its employees (the ones who were incorporated in good standing). However, three of the independent contractor installers were reclassified by the IDES auditor to employee status.
DETERMINATION & ASSESSMENT (TAX BILL): The Determination & Assessment (tax bill) from the IDES audit of 2011 resulted in a tax bill of $3,398. The amount of $2,782.32 was unpaid contributions (back taxes owed for the three independent contractors at issue for the audit period of 2011). There were no penalties assessed, but there was interest assessed of $615.68 (the interest rate for IDES assessments is shockingly 24% per year!)
ADMINISTRATIVE HEARING WAS HELD: This Illinois carpet company protested the results of the one year audit and requested an Administrative Hearing before an IDES Administrative Law Judge.
Wessels Sherman Attorney Nancy E. Joerg represented the carpet company at the IDES Administrative Hearing. A large part of preparing for that Hearing was pulling together documentary proof that the three workers at issue were self employed independent contractors, per Section 212(A), (B), and (C) of the Illinois Unemployment Insurance Act.
CARPET BINDER: One of the three independent contractors at issue was a "carpet binder." This fact turned out to be instrumental in the Hearing because it was clear that our client (which had no carpet binders of its own) was in a different course or kind of business than the carpet binder at issue [Section 212(B)].
CARPET INSTALLERS: The other two independent contractors at issue in the Hearing were carpet installers. One was incorporated in good standing for the audit year, and the other had a business name and that business name was on its truck. What was very helpful at the Hearing (for purposes of proving that the unincorporated carpet installer was self employed) were photographs of the independent contractor's truck with his business name on his truck.
The IDES auditor would have not reclassified the incorporated independent contractor to employee status during the audit had the company presented the auditor with the necessary proof that the installer was in fact incorporated in good standing. This was a mere (and unfortunate) oversight during the audit. It resulted in having to prove the installer's status at the Administrative Hearing which our client was able to do successfully.
As a result of the Administrative Hearing, the company had a complete victory on the independent contractor status of the three workers. The two carpet installers and the carpet binder were all found to be independent contractors under the IDES test for independent contractor status [Section 212(A), (B), and (C) of the Illinois Unemployment Insurance Act].
In her written Decision, the Administrative Law Judge noted with approval that the three workers did in fact work for others and none of them received more than 50% of their income for the year from the carpet company that was audited.
CARPET COMPANY WAS IN THE BUSINESS OF SELLING FLOORING ONLY: Also very helpful in this case was the fact that the Administrative Law Judge ruled that the carpet company was in the business of selling flooring only (and had no employee installers and no employee binders). Therefore, the Administrative Law Judge was able to find that the carpet company and the three workers at issue were in different kinds of business per Section 212(B).
The Administrative Law Judge looked with approval at the company's website and its contracts. She found that the carpet company made installation merely available to customers, but the company did not hold itself out as doing the installation itself. While this may sound extremely technical, it is very important to show (if possible) different course or kind of business under Section 212(B) of the Illinois Unemployment Insurance Act.
DETERMINATION & ASSESSMENT WAS SET ASIDE: The Administrative Law Judge ended her Decision by saying that she recommended that the entire Determination & Assessment be "set aside." Therefore, the carpet company ended up owing absolutely nothing to the IDES as a result of its effective protest and participation at the administrative hearing.
For assistance with IDES audits and hearings or for consultations on limiting your liability in the use of independent contractors, contact Attorney Nancy E. Joerg, who enjoys a nationwide reputation in assisting companies who use Independent Contractors of all types. Nancy Joerg can be reached at Wessels Sherman's St. Charles, Illinois office: 630-377-1554 or email her at email@example.com.