This article is being written as a cautionary tale for readers who are interested in how to have a good outcome in an Illinois Department of Employment Security (IDES) audit, especially where independent contractors (1099 workers) are at issue.
I have been helping Illinois companies to defend against IDES audits for almost 30 years, and I have seen many unexpected problems in dealing with these IDES audits.
Companies often feel confident initially that they are "ready" for an IDES audit because they have consulted with me over the years and have delegated tasks on the many strategy tips that I have offered to them (in order to keep their risk down in using independent contractors).
SUGGESTIONS WERE NEVER IMPLEMENTED: As my client prepares for the IDES audit, they suddenly realize, to their bitter disappointment, that the internal people in their company that they "trusted" with the important task of implementing my suggestions about lowering liability in using independent contractors have simply dropped the ball.
For example, under Section 212.1 (the part of the Illinois Unemployment Insurance Act pertaining to truck owner-operators), there are certain specific legal requirements that a trucking company MUST DO to pass an IDES audit.
One of these strict requirements under Section 212.1 of the Illinois Unemployment Insurance Act is that all of the owner-operators who are independent contractors must have their business name and business address on their trucks. The placement of the owner-operator's business name and business address on the truck is not important for IDES purposes. The size and color of the business name and business address on the truck is also not important for IDES purposes. The IDES regulations for 212.1 are silent on this. It is simply the legal requirement of Section 212.1 that the owner-operators have their business name and business address-somewhere-anywhere-on their trucks.
What many of my trucking clients find is that the individual who was in charge of making sure this happened dropped the ball. The individual never gave the owner-operator a deadline by which they must put their business name and business address on their truck, or the individual never took pictures of the business name and business addresses on the trucks, and therefore, there is no way for the company to prove to the IDES auditor that in the audit year the owner-operators at issue actually had their business name and business address on their truck. The IDES auditor will usually ask for proof of this. Therefore, the trucking company should take and carefully store photos of all of the owner-operators' trucks, showing the business name and business address of the owner-operator.
DON'T BE LEFT DEFENSELESS: Of course this cautionary tale applies not only to trucking companies but to any industry or business in Illinois which is left defenseless against an IDES audit on the issue of independent contractor status (because the company inadvertently failed to follow through on simple suggestions for lowering its risk in using independent contractors).
GIVE DEADLINES TO THE INDEPENDENT CONTRACTORS TO PROVIDE PROOF OF SELF-EMPLOYMENT: If a company wants to make sure all of the independent contractors have business names, give the independent contractors a deadline by which they give you their business name, and then write checks to their business names and issue IRS Form 1099s to their business names.
If your goal is to have all your independent contractors give you advertising in their business name, give them a deadline and make sure you get the ads from each independent contractor. Take this seriously. Make sure it happens!
IDES CONTINUES ITS AGGRESSIVE AUDITING AND MORE THAN HALF OF IDES AUDITS ARE RANDOM: The IDES is continuing its aggressive auditing at a fast pace . The IDES itself proudly announces to the public that it has raised more money through its audits than any other state in the United States. This means that Illinois businesses have to take special care to protect themselves in the face of a potential IDES audit. More than half of IDES audits are purely random so there is no way of knowing if you will be audited. Now there are also many "follow up" IDES audits.
We have a free checklist of the kinds of documents that should go into an independent contractor file. For a free copy of that checklist and for assistance with an IDES audit or evaluating your use of Independent Contractors, contact Nancy Joerg at Wessels Sherman's St. Charles, Illinois office: 630-377-1554 or email her at [email protected].