By Nancy E. Joerg, Esq.
Because of shifting audit
policies by the Illinois Department of Employment Security (IDES), I am
receiving an increasing number of concerned phone calls from clients and their
accountants. They ask me for clarification about the best way to handle IDES
audits.
These are the top five questions and my answers regarding
IDES audits of Illinois companies who use independent contractors:
QUESTION #1:
How much can the IDES hit our company with if we get a fraud penalty?
ANSWER TO #1:
IDES fraud penalties are a whopping 60%
of the “contributions owed” as a result of the IDES audit. So, if a company
has an assessment of $100,000 excluding interest, the fraud penalty would be
$60,000 on top of the $100,000 owed (excluding interest) as a result of
the IDES auditor deciding that the independent contractors for the years being
audited are misclassified.
QUESTION #2:
How much is the IDES interest rate and can that be negotiated down?
ANSWER TO #2:
The IDES interest rate is a terrifying 24%
per year (or 2% per month). Naturally, if an IDES auditor is auditing a
year that is three years back, there is going to be more interest owed on any
assessment that issues from that audit (as compared to an audit of just last
year for example). Interest attached to
IDES audits builds up at an alarming rate.
Unfortunately, IDES auditors
do not have the authority to negotiate the interest rate.
QUESTION #3:
What are these follow up audits that I keep hearing about?
ANSWER TO #3:
The IDES recently started auditing companies that were previously audited by
the IDES in recent years. These are called follow
up audits. This is a radical departure for the IDES. Until recently, the IDES
only audited companies who came up in a random selection or companies that had
an independent contractor apply for unemployment insurance benefits (thereby
creating what the IDES calls a “controversy”).
More and more follow up audits are being done by the
IDES. This is very discouraging to
companies who have just weathered an IDES audit and now find out they have go
through another IDES audit.
The danger of follow up audits is that 60% fraud penalties
become a real issue if the IDES
auditor decides the company intentionally continued to classify workers
as independent contractors when it was clear from the prior audit that the
workers should be classified as employees.
QUESTION #4:
Is it worth protesting an IDES audit?
ANSWER TO #4:
In my opinion, it is always worthwhile to protest. By timely protesting the
Determination & Assessment (tax bill), the company has the opportunity for
a Hearing before an Administrative Law Judge. The Administrative Law Judge is
an employee of the IDES, but the
Administrative Law Judge is charged with the legal responsibility of fairly evaluating
the issues involved in the audit and making an independent decision. It is
not unusual for the Administrative Law Judge to exercise this independence and
make a decision contrary to the decision of the IDES auditor and in favor of
the company.
QUESTION #5:
What are Objections?
ANSWER TO #5:
If the company disagrees with the Decision of the Administrative Law Judge, a
letter (called Objections) can be written by the company to object to the
Decision. Objections do not have to be long and complex; they are not legal
briefs. Objections are simply the written
reasons why the company feels the Administrative Law Judge is in error in
his/her Decision. The Objections process does not require a new hearing. It
is simply a letter in protest of the Administrative Law Judge’s Decision.
Questions? Consultations on Independent Contractor Status? Call
Attorney Nancy E. Joerg of Wessels Sherman’s St. Charles, Illinois
office: (630) 377-1554 or email her at najoerg@wesselssherman.com.
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