Key Issues That Illinois Accountants Should Be Aware Of When Handling IDES Audits

Illinois Department of Employment Security (IDES) audits have changed radically in recent years. Illinois accountants should be aware of the following major changes that have occurred especially with regard to Illinois companies that use independent contractors.

1. The IDES is emphasizing that certain business owners may be personally liable for any assessments that may occur as a result of an IDES audit.
2. IDES auditors lecture the companies they audit that the IDES will not hesitate to assess a 60% fraud charge onto a company that intentionally and willfully misclassifies independent contractors.In the past, the majority of IDES audits have been triggered by misclassified independent contractors who filed for unemployment insurance benefits upon being separated from the company. Random audits were also a big reason for IDES audits. Most recently, IDES audits are triggered because the company has been previously audited by the IDES. These kinds of audits are called FOLLOW-UP AUDITS. I am finding that more and more clients are being hit with these follow-up audits.
3. Illinois companies that are hit with follow-up audits should be particularly sensitive to the fact that they may also be hit with a 60% fraud assessment. If a company was previously audited by the IDES and the company ignored the deficiencies that were found as a result of that prior IDES audit, the IDES can then prove fraud.
4. Accountants who are assisting Illinois trucking companies who use independent contractor owner-operators need to be well versed in the special law and regulations that apply to the trucking industry.

Contact Attorney Nancy E. Joerg (Managing Shareholder of the St. Charles Illinois office of Wessels Sherman) who enjoys a nationwide reputation in working with companies who use Independent Contractors of all types.  Nancy Joerg can be reached at 630-377-1554 or email her at najoerg@wesselssherman.com

Top Five Questions Illinois Accountants Have Regarding IDES Audits

February 2016
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.