March 2013

By: Nancy E. Joerg, Esq.

The Illinois Department of Employment Security (IDES), the state agency in Illinois that administers unemployment insurance benefits, has just made its audit policy much STRICTER. The new audit policy is now calling for IDES auditors to audit a company for an EXTRA YEAR if the amount the company owes the IDES (in back contributions) is more than a new threshold of $2,000.

$5,000 RULE NO LONGER BEING USED: The old, much more forgiving and employer-friendly IDES audit policy was that an IDES auditor would only go back to a second year in an audit if the company being audited owed the IDES more than $5,000 (for the first year being audited).

$2,000 RULE IS NOW IN EFFECT: Note that the $2,000 amount (like the old standard of $5,000) means just the contributions owed (i.e. the 24% interest and any monetary penalties are not added in to the dollar amount, for purposes of deciding whether the IDES audit will be extended for another year).

Adding to the pain for those companies being audited by the IDES, if the company is audited for a second year and that second audit year results in back contributions owed of more than $2,000, then the IDES auditor can again extend the audit backwards for a third (or even fourth!) audit year.

Four years for audits is the maximum permitted under the law (the Illinois Unemployment Insurance Act).

MULTI-YEAR AUDITS WILL BECOME THE NORM: What all of this means is that companies audited by the IDES are far more likely to suffer under a multi-year audit. One year IDES audits will no longer be the norm. This new audit policy went into effect on January 1, 2013. It is not “the law” — it is just an internal IDES audit policy, generally intended to be followed by all IDES auditors around the state of Illinois. The old $5,000 audit policy was in effect for roughly a decade or more. It is therefore now somewhat shocking to see this sudden change, a change which came with no warning or fanfare and which will substantially increase the financial impact to many companies being audited by the IDES.

EVALUATE INDEPENDENT CONTRACTOR RELATIONSHIPS: Illinois companies who use independent contractors now have a far greater risk of owing hefty sums to the IDES upon multi-year audit. This increased risk means that these companies should now take a very serious look at the various kinds of independent contractors they use. They should ask themselves:

• When have I last reviewed my independent contractor agreements?
• When have I last scrutinized my website?
• When have I checked to see if incorporated independent contractors are in Good Standing?
• What do I have in my independent contractor files?
• What business expenses am I covering for my independent contractors?
• What name is listed on the checks I write to the independent contractors?
• What restrictions and controls am I placing on my independent contractors?

The climate in Illinois has just unfortunately become colder and less hospitable for those companies using independent contractors. Take all possible steps now to evaluate and lower your risk. Happily, there are many relatively simple measures a company can take to dramatically protect itself in its use of independent contractors.

A prudent company who uses independent contractors in Illinois should carefully review all aspects of their independent contractor relationships (and take all necessary steps at once to strengthen these relationships).

Questions? Call Attorney Nancy E. Joerg of Wessels Sherman’s St. Charles, IL office at (630) 377-1554 or email her at najoerg@wesselssherman.com.

By: Nancy E. Joerg, Esq.

The Illinois Department of Employment Security (IDES), the state agency in Illinois that administers unemployment insurance benefits, has just made its audit policy much STRICTER. The new audit policy is now calling for IDES auditors to audit a company for an EXTRA YEAR if the amount the company owes the IDES (in back contributions) is more than a new threshold of $2,000.

$5,000 RULE NO LONGER BEING USED: The old, much more forgiving and employer-friendly IDES audit policy was that an IDES auditor would only go back to a second year in an audit if the company being audited owed the IDES more than $5,000 (for the first year being audited).

$2,000 RULE IS NOW IN EFFECT: Note that the $2,000 amount (like the old standard of $5,000) means just the contributions owed (i.e. the 24% interest and any monetary penalties are not added in to the dollar amount, for purposes of deciding whether the IDES audit will be extended for another year).

Adding to the pain for those companies being audited by the IDES, if the company is audited for a second year and that second audit year results in back contributions owed of more than $2,000, then the IDES auditor can again extend the audit backwards for a third (or even fourth!) audit year.

Four years for audits is the maximum permitted under the law (the Illinois Unemployment Insurance Act).

MULTI-YEAR AUDITS WILL BECOME THE NORM: What all of this means is that companies audited by the IDES are far more likely to suffer under a multi-year audit. One year IDES audits will no longer be the norm. This new audit policy went into effect on January 1, 2013. It is not “the law” — it is just an internal IDES audit policy, generally intended to be followed by all IDES auditors around the state of Illinois. The old $5,000 audit policy was in effect for roughly a decade or more. It is therefore now somewhat shocking to see this sudden change, a change which came with no warning or fanfare and which will substantially increase the financial impact to many companies being audited by the IDES.

EVALUATE INDEPENDENT CONTRACTOR RELATIONSHIPS: Illinois companies who use independent contractors now have a far greater risk of owing hefty sums to the IDES upon multi-year audit. This increased risk means that these companies should now take a very serious look at the various kinds of independent contractors they use. They should ask themselves:

• When have I last reviewed my independent contractor agreements?
• When have I last scrutinized my website?
• When have I checked to see if incorporated independent contractors are in Good Standing?
• What do I have in my independent contractor files?
• What business expenses am I covering for my independent contractors?
• What name is listed on the checks I write to the independent contractors?
• What restrictions and controls am I placing on my independent contractors?

The climate in Illinois has just unfortunately become colder and less hospitable for those companies using independent contractors. Take all possible steps now to evaluate and lower your risk. Happily, there are many relatively simple measures a company can take to dramatically protect itself in its use of independent contractors.

A prudent company who uses independent contractors in Illinois should carefully review all aspects of their independent contractor relationships (and take all necessary steps at once to strengthen these relationships).

Questions? Call Attorney Nancy E. Joerg of Wessels Sherman’s St. Charles, IL office at (630) 377-1554 or email her at najoerg@wesselssherman.com.