IDES Audits: Deciding How Much a Trucking Company Owes

By
Nancy E. Joerg, Esq.
Senior Attorney and Shareholder
Wessels Pautsch & Sherman P.C.
St. Charles, Illinois
(630) 377-1554
najoerg@stch.w-p.com
www.w-p.com

One question that clients frequently ask me when they find out their company is going to be audited by the IDES is: “How will the IDES decide how much our company should pay them if anything?”

The purpose of this article is to explain, as clearly and simply as I can, how IDES auditors put together Assessments (tax bills) upon IDES audit. In plain English, what will I owe, if anything?

The first thing the IDES auditor considers when putting together an Assessment (after the IDES auditor has audited a company) is: “What is the company’s unemployment insurance rate for the audit year?” Let’s look at a make believe example…

Smith Trucking Company is being audited for the year 2005. Smith Trucking Company has a truck driver whom the IDES auditor decides is really an employee and not an independent contractor. Smith Trucking Company can’t convince the IDES auditor otherwise. The truck driver in question grossed $75,000 in 2005 (that was the amount on the 1099 form which Smith Trucking gave to the truck driver).

UNEMPLOYMENT INSURANCE RATE: Smith Trucking Company’s unemployment insurance rate for 2005 is 4.5% (rates in 2005 range from 1.2% to 9.8%).

TAXABLE WAGE BASE: For 2005, the IDES auditor considers the first $10,500. (See chart below.) Even though the truck driver grossed $75,000 in providing services as an independent contractor driver for Smith Trucking, the IDES auditor (upon deciding that the truck driver was misclassified and is really an employee) looks at only the first $10,500 of wages. This is called the taxable wages.

Readers should be aware that each year has a different taxable wage threshold. The following is a chart showing what the taxable wage base has been for the past seven years:

UNEMPLOYMENT INSURANCE RATE TIMES TAXABLE WAGE BASE: The IDES auditor takes the unemployment insurance rate for the audit year in question (in this example, it is 4.5% or .045) and multiplies it times the taxable wage base for the particular worker (in this example, the taxable wage base is $10,500). In this example, the amount owed for the particular reclassified truck driver is .045 X $10,500, which equals $472.50.

INTEREST: Once the auditor has taken the unemployment insurance rate for the audit year in question and multiplied it times the taxable wage base for a particular worker (whom the auditor has reclassified to employee status), the auditor next assesses interest. The IDES interest is unfortunately 24% per year.

It goes without saying that the more individuals that the IDES auditor decides are misclassified, the greater the eventual Assessment.

$5,000 RULE: An interesting but little known fact about IDES audits is that the auditor will only audit for the year in question unless the Assessment is over $5,000. In the case of the example used in this article, the audit year was 2005; the IDES auditor will only audit for that one year unless the amount of the Assessment is over $5,000 for 2005.

If the amount of the Assessment for 2005 is more than $5,000, then the IDES auditor will go back to 2004 and audit the company for that year as well. If 2004 is over $5,000, then the auditor will go back and audit the company for 2003. The Statute of Limitations is four years under the Illinois Unemployment Insurance Act (i.e., the most an auditor can audit a company for is four years). It has been a long time since I have seen an IDES auditor audit a company for four years. The longest amount of time audited by the IDES that I have seen in the past few years has been a three-year audit.

PROTESTING THE TAX BILL: When a company receives its Notice of Determination and Assessment (tax bill) after the IDES audit is concluded, the company can protest that Assessment (in whole, or in part) and go to a Hearing (many are phone hearings). It is often a very good strategy to protest and ask for a Hearing because Hearing Officers feel very free to disagree with auditors.

If a company provides enough effective evidence of independent contractor status or of any of the other issues that might have arisen during the audit, the company can have the entire Assessment cancelled or at least have part of that Assessment cancelled, thereby owing less to the IDES.

One important tip here is if you are going to protest the Determination and Assessment, be sure that you do it right away. You only have 20 days from the Notice of the Determination and Assessment (tax bill) to submit your protest. Protests do not have to be elaborate in any way. In fact, they can just be two or three sentences. By submitting a protest in a timely fashion, you have preserved your right to appeal and have a Hearing.

It is important to understand the mechanics and the underlying laws, rules, and regulations that control an IDES audit. There are many important strategy tips, defenses, and issues to keep in mind when being audited by the IDES. Be as informed as you can when you go through this process.

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.

CDs: Attorney Nancy Joerg of Wessels Pautsch & Sherman P.C. has developed several popular and affordable CDs about independent contractor status “do’s and don’ts.”

CDs (in “plain English” and easy to understand) are available on the following independent contractor subjects: “Understanding the New IDES Law: Defining Independent Contractor/Owner-Operators,” “Practical Tips on Independent Contractor Status: The Basics and Beyond;” “Hot Tips Regarding Independent Contractor Truck Drivers: Survival Guide for Trucking Management;” and “Employers’ Illinois Department of Employment Security (IDES) Audit Survival Kit.” Look on our website (www.w-p.com) to view the entire list of CDs.

These professionally recorded CDs are $48. They are the most cost-effective and time efficient way for a company to understand personnel, human resource, and payroll independent contractor issues (and to do “in-house” training of management and staff). The CDs have many practical tips, easy solutions, and common sense ideas for management on the independent contractor versus employee issue.

Call Doris Baxter of Masterpiece Audio Productions at 630-377-1554 to order any of these popular and reasonably priced CDs.

Biographical Information for Nancy E. Joerg

Nancy E. Joerg is a senior attorney and shareholder at Wessels Pautsch & Sherman P.C., a labor and employment law firm concentrating exclusively in the representation of management. Wessels Pautsch & Sherman P.C. maintains offices in St. Charles and Chicago, Illinois; Milwaukee, Wisconsin; Davenport, Iowa; Minneapolis, Minnesota; and Indianapolis, Indiana. (Ms. Joerg can be reached at the St. Charles, Illinois office at 630-377-1554.)

Ms. Joerg defends trucking companies in audits and hearings before various state agencies (including the Illinois Department of Employment Security) on the issue of independent contractor status and other issues of employment law. She reviews and drafts IDES owner-operator leases and independent contractor agreements. Ms. Joerg also defends companies before the EEOC and the IDHR as to discrimination cases of all kinds.