By: Nancy E. Joerg, Esq.
Many clients and/or their accountants contact me after they have been working with the Illinois Department of Employment Security (IDES) auditor for awhile.
They contact me when they see the IDES audit is not "going well"; they are becoming concerned the IDES auditor is not seeing things their way; the auditor is giving out "signals" (that the auditor believes the independent contractors at issue are really employees for IDES purposes).
Hence, the Company's representative (i.e., the owner, controller, accountant, or business advisor) starts to panic and does urgent research on the Internet and ends up calling me for emergency advice.
The above is a common story in my professional life. While I am extremely happy to help people at any stage of an IDES audit, I want to get the word out there that the best time to consult with an attorney (such as myself who has a deep experience in handling IDES audits) is long before the Company's representative actually meets with the IDES auditor.
Why do I say that early preparation is important for dealing with an IDES auditor? The answer is that IDES auditors speak a "special language" filled with precise terms of art. For example, when an IDES auditor asks if the company " trains" or " instructs" the independent contractors, the Company's representative will often respond "yes, we train" or "yes, we instruct." The Company's representative doesn't realize that those responses tell the IDES auditor that (under the auditor's independent contractor test) the Company controls and directs the workers/independent contractors under audit.
When the IDES auditor asks the Company's representative if the worker/independent contractor has any business expenses, and the Company's representative tells the auditor that "no, the independent contractor does not have any business expenses," then this is a huge knock against independent contractor status in the IDES world.
When the IDES auditor asks the Company's representative if the worker/independent contractor can " quit at any time," if the answer is "yes," that response by the company being audited is extremely harmful to independent contractor status.
If the IDES auditor asks if the worker under review has to " report" to the Company or makes reports, if the answer is "yes," then independent contractor status is going down the drain in the eyes of the IDES auditor.
It is extremely important that companies prepare for an IDES audit when they use independent contractors. Among other areas of preparation, the right language and the right presentation of facts are crucial in this setting.
The IDES auditor uses a special legal test, Section 212(A), (B), and (C) of the Illinois Unemployment Insurance Act to define when a worker is an independent contractor and when the worker is an employee. Companies who have been notified by the IDES that they are going to be audited should spend some time understanding Section 212(A), (B), and (C) or whatever part of the Illinois Unemployment Insurance Act might pertain to the kinds of independent contractors used by the Company during the audit years (for example, independent contractor real estate appraisers may fall under Section 217.2 and truck owner-operators may fall under Section 212.1).
The Company under IDES audit must plan how it is going to prove for each independent contractor that the worker meets the legal requirements of the IDES independent contractor test that is going to be used to determine whether the worker is misclassified. If there are any independent contractor agreements, they should be carefully reviewed. Invoices from the independent contractors should be examined. IRS 1099 forms for the year in question should be evaluated. The Company's website and how it describes independent contractors should be carefully analyzed as well. Know your weak spots ahead of the IDES audit. Map out your strategy.
Preparation is essential for effectively making your case before an IDES auditor as to why the workers at issue are properly classified as independent contractors.
Questions? Call Attorney Nancy E. Joerg of Wessels Sherman's St. Charles, Illinois office: 630-377-1554 or email her at firstname.lastname@example.org.