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

U.S. DOL Urges State Departments of Unemployment Insurance to Clamp Down on Worker Misclassification

Over $39 million in federal grants was awarded by the U.S. Department of Labor to 45 states and territories to help reduce the misclassification of employees as independent contractors and enhance unemployment insurance programs. With emotion and fanfare, U.S. Secretary of Labor Thomas Perez on September 22, 2015 explained:

"For more than 80 years, the unemployment insurance system has been a crucial lifeline for millions of working people who lost their job through no fault of their own. These (federal) grants will help states use every tool at their disposal to ensure payments are available to those who are eligible, and take important steps to reduce and recover improper payments.”

A concrete example of an important step is an increase in unemployment insurance audits with resulting assessments for independent contractor misclassification!

This is the second year that the U.S. DOL awarded federal grants to financially support the ability of state unemployment insurance tax programs to identify instances where employers allegedly misclassify employees as independent contractors or fail to report the wages paid to employee workers.

The U.S. Department of Labor’s website proudly announces:

“The Wage and Hour Division is working with the IRS and many states to combat employee misclassification and to ensure that workers get the wages, benefits, and protections to which they are entitled. We have entered into partnerships with 27 states to work together on this issue in a variety of ways – through, for example, information sharing and coordinated enforcement – to ensure that we are all using our resources most strategically, effectively and efficiently to address this significant (misclassification) problem.”

The U.S. DOL has been front and center lately as a champion of employees’ rights and a mortal foe of worker misclassification. It is therefore an increasingly hostile climate for companies using independent contractors.

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.

Illinois Accountants Need to React to Stern Warnings from the IDES Regarding Future Fraud Penalties for Independent Contractor Misclassification

December, 2015

Illinois accountants should be acutely aware that one of the newest audit strategies of the increasingly aggressive Illinois Department of Employment Security (IDES) is to give Illinois companies (who are currently being audited) stern warnings of hefty fraud penalties that these companies may face in the future!

HEFTY FRAUD PENALTIES: The standard routine that IDES auditors follow is to unleash the topic of future 60% fraud penalties at the “exit interview.” 

The exit interview is the final communication that the IDES auditor has with the company being audited. The IDES auditor solemnly informs  the company (or its representative) that if the company persists in wrongly classifying these workers as independent contractors (because the company now presumably knows, due to the current IDES audit, what it must change in terms of classifying workers as independent contractors ), then the company faces a bleak future of possible massive fraud penalties (and possible personal liability) for its alleged INTENTIONAL WRONGDOING!

AGGRESSIVE FOLLOW-UP AUDITS: To make matters even more dangerous, IDES audit supervisors have very recently started assigning FOLLOW-UP AUDITS in great numbers! Hitting previously audited companies with follow-up audits is a brand new and worrying audit strategy by the IDES!

So, if you have a client who has been audited before by the IDES (and whose independent contractors were reclassified to employee status by the IDES auditor!), that client may well be selected now for a FOLLOW-UP AUDIT!

Illinois companies who face a FOLLOW-UP AUDIT should brace themselves for Determination and Assessments (audit tax bills) with 24% interest – and then ANOTHER 60% fraud penalty on top of that – if they are found to have intentionally MISCLASSIFIED their independent contractors.  

Explain to your clients that 60% fraud penalties are the devastating weapon that IDES auditors will unleash at these FOLLOW-UP AUDITS.

In view of the combination of 1) potential fraud penalties of 60% and 2) follow-up IDES audits of Illinois companies who have had prior misclassification difficulties with IDES auditors and hearing officers, it is very important to restructure and make strategic changes to the Independent Contractor relationship. 

Please contact me so that we can evaluate your clients’ current independent contractor usage and risks and also discuss ideas for damage control in the event the IDES contacts your clients for follow up audits.

My office number is 630-377-1554. My cell number is 630-440-1945. My email address is najoerg@wesselssherman.com. I look forward to hearing from you sometime soon.

FREE COPY OF REGULATIONS PERTAINING TO SECTION 1402 FRAUD PENALTY: Also, if any readers of this article want a copy of the Illinois Unemployment Insurance Act as it relates to fraud penalties (Section 1402) or wishes a free copy of the Regulations pertaining to the fraud penalty law, please contact my legal assistant Tammy Nelson (tanelson@wesselssherman.com or 630-377-1554). I will continue to keep accountants updated as more becomes known about the new and developing situation concerning fraud penalties and IDES audits in general. 

Now is the time to act to protect Illinois clients who use independent contractors.