March 2011

By: Nancy E. Joerg, Esq.

I frequently get phone calls from clients (employers) who wonder how their independent contractors can go to the local Illinois Department of Employment Security (IDES) office and apply for unemployment insurance benefits.

The most common comment I hear is “I thought that only employees could apply for unemployment insurance benefits.”

Even when independent contractors sign a valid independent contractor agreement, they are not actually prohibited from going to the Local IDES Office and applying for unemployment insurance. Any individual can walk into the Local IDES Office and apply for benefits; of course, not all these individuals will be ultimately successful in obtaining unemployment insurance benefits.

IDES WILL ASK FOR ALL SOURCES OF INCOME: If an independent contractor applies for unemployment insurance benefits (either going in person to the Local IDES Office or applying online), they will be asked for all sources of income that they earned over the past year. Usually, the last “30 day employer” is the company who is “charged” for the unemployment insurance benefits that this individual might obtain.

IDES WILL CROSS CHECK SOCIAL SECURITY NUMBER WITH SOURCE OF INCOME: In the course of writing down/reporting all the sources of income for that individual for the past year, the name of a company where the individual worked as an independent contractor may arise. The IDES will cross check the individual’s Social Security Number with that source of income. If the IDES finds out that the IDES did not report wages to the Social Security Number of that individual, that discrepancy will normally trigger an IDES audit of that company-even if the individual was classified by the company as an independent contractor.

Independent contractor/employee discrepancies are the biggest source of leads for IDES audiTS: When an independent contractor applies for unemployment insurance benefits, the IDES will not assume that the individual is indeed an independent contractor. Rather, the IDES will apply its legal tests to the fact pattern and see whether the IDES agrees that the individual is an independent contractor. The two most common IDES independent contractor legal tests are:

1) Section 212.1: If the individual applying for unemployment insurance benefits is a truck driver/owner-operator, then the IDES may apply the legal test known as Section 212.1 (truck owner-operator) of the Illinois Unemployment Insurance Act.

2) Section 212(A), (B), and (C): If the individual applying for unemployment insurance benefits is a “regular independent contractor” (not a truck owner-operator), then the test most likely to be applied is Section 212(A), (B), and (C) of the Illinois Unemployment Insurance Act.

IDES WILL STILL LOOK AT THE ELIGIBILITY OF THE EMPLOYEE: If the Local IDES Office determines that the individual trying to obtain unemployment insurance benefits is really an employee and not an independent contractor, then the IDES will still evaluate the fact pattern to see if this newly classified “employee” is eligible for unemployment insurance benefits. For example, an individual can be found to be ineligible for unemployment insurance benefits because the individual committed misconduct. If an individual is guilty of misconduct, the individual will be denied unemployment insurance benefits even though the IDES found the individual to be an employee (and not an independent contractor).

Even when individuals are found to be ineligible by the IDES for unemployment insurance benefits, if a company has classified them as independent contractors (but the IDES has deemed them to be employees), this will usually lead to an IDES audit of the company.

IF AN INDEPENDENT CONTRACTOR FILES FOR UNEMPLOYMENT, ASSUME YOU WILL BE AUDITED BY IDES AND BE PREPARED: If one of your independent contractors files for unemployment insurance benefits, assume you will eventually be audited by the IDES. Prepare yourself as thoroughly as possible for that coming event. One good way to prepare for an IDES audit is to fill out a Worker Relationship Questionnaire (the multi-page document that IDES auditors use to determine whether an individual is an independent contractor or an employee).

If readers would like a free copy of the questionnaires that IDES auditors use, please contact Wessels Sherman Legal Assistant Tammy Nelson at 630-377-1554 or via email at tanelson@wesselssherman.com.

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