Ownership of the Truck is Extremely Important for Independent Contractor/Owner Operators in Illinois

July 2009
By: Nancy E. Joerg, Esq.

Illinois has a very strict test, Section 212.1 of the Illinois Unemployment Insurance Act. This rather short but tough test defines when truck drivers are independent contractors and when they are employees for Illinois unemployment insurance purposes.

Section 212.1 decides for Illinois Department of Employment Security (IDES) purposes when an owner-operator is either an independent contractor or an employee. Section 212.1 has no relationship to IRS purposes; it is strictly for IDES unemployment insurance purposes.

When an IDES auditor decides to audit your Company, the auditor will look to Section 212.1 to decide if your owner-operators are really independent contractors or employees. Section 212.1 has six parts to it. The truck driver must pass all six parts in order to be found to be an independent contractor/owner-operator. 
 
If the auditor finds that the truck driver is really your trucking company's employee rather than its independent contractor/owner operator, then your trucking company will unfortunately owe back unemployment insurance taxes to the IDES (at 24% per year!).

For trucking companies that have many owner-operators, when an auditor finds that the owner-operators are really employees and not independent contractors, the tax bill mounts up fast and it is not unusual to see trucking companies with very high IDES tax bills as the result of an IDES audit. Therefore, it is important for Illinois trucking companies who use independent contractor/owner-operators to make sure that the owner-operators can pass all six parts of Section 212.1 .

The most confusing part of Section 212.1 is the fourth part, Section 212.1(a)(4). This fourth part talks about the nature of the ownership of the truck. It warns Illinois trucking companies that the owner-operator must hold title to his own truck or lease the equipment (meaning lease his truck) from an unrelated third party (such as PENSKE or another truck rental company). Section 212.1 warns that if the actual Company [meaning the carrier that the independent contractor/owner-operator hauls for] owns the truck, then the owner-operator is found an employee for IDES purposes.

Obviously there are trucking companies all over Illinois who mistakenly classify their truck drivers as independent contractor/owner-operators even though those truck drivers are driving Company trucks. Those companies are at risk! If those trucking companies are audited by the IDES, there is no question that those truck drivers will be found to be employees for IDES purposes.
However, where Section 212.1 gets more difficult to understand is when:

• the independent contractor/owner-operator drives a truck upon which the carrier holds the security interest, or
• drives a truck which the owner-operator is lease-purchasing from the carrier, or
• drives a truck which is owned, controlled, or operated by or in common with the carrier (directly or indirectly), or a family member of a shareholder of the carrier, or an owner/partner in the carrier company.

If a family member of a shareholder of a carrier has a security interest or an ownership interest in a truck being driven by an independent contractor/owner-operator of the carrier, then the IDES would surely find that owner-operator to be an employee upon audit. This is a harsh reality. Sadly, many trucking companies do not find out about the harshness and strictness of Section 212.1 until they are audited, and then it is too late!

Callers sometimes ask me how a "family member of a shareholder" of a carrier is defined by Section 212.1. Section 212.1 actually answers this question by stating (in its fine print) that a family member means any parent, sibling, child, sibling of a parent, or any of the foregoing relations by marriage. So... if any of these individuals described as family members have an ownership or security interest in a truck driven by an independent contractor/owner-operator, then that driver will be reclassified to employee status upon audit.

The Regulations to Section 212.1 try to explain some of these complexities. The following is an example from the Regulations to Section 212.1(a)(4), the portion of the six-part test upon which I am focusing in this article:

Example: Adams operates a truck for XYZ Trucking Company (Adams is the alleged independent contractor/owner-operator for XYZ Trucking Company). XYZ is a corporation in which Jones is the majority shareholder. While Adams holds title to the truck, ABC Trucking Company, of which Jones is the sole proprietor, holds a lien on Adams' truck. Section 212.1 does not exempt the services Adams performs for XYZ from the Act's definition of employment (in other words, Adams is found to be an employee of the carrier, XYZ Trucking Company) since ABC is owned or controlled in common with XYZ.

If an Illinois trucking company is using independent contractor/owner-operators who do not own the truck outright but are lease-purchasing from another entity or have security interests or liens on their equipment, it would be a wise idea to have those relationships carefully evaluated by an attorney who is extremely knowledgeable in the intricacies of Section 212.1(a)(4). This is a complex legal area.

In future articles, I will go deeper into the other five parts of the six-part test of Section 212.1. It is important for all Illinois carriers who use independent contractor/owner-operators to be extremely familiar with Section 212.1 because, as I have stated above, all six parts of the six-part test must be passed with flying colors or else the owner-operators will be reclassified to employee status.

If readers have an unemployment insurance claim, audit, hearing, or any unemployment insurance questions, please contact Senior Attorney & Shareholder Nancy Joerg at 630-377-1554 or via email at najoerg@wesselssherman.com.

Employers are Confused! How Can my Employees Both Work and Collect Unemployment Insurance Benefits from the IDES?!

April 2011
By: Nancy E. Joerg, Esq.

In this extremely challenging economy, many employers are cutting back on their employees' hours. Their employees are making a small enough amount of money that they are able to also collect unemployment insurance benefits from the Illinois Department of Employment Security (IDES).

In other cases, individuals have lost their jobs completely and have been able to obtain unemployment insurance benefits. However, in the course of collecting unemployment insurance benefits, these individuals may have been fortunate enough to obtain part-time employment. These employees worry about whether they will lose their unemployment insurance benefits because they are working part time and drawing a small income. How does this all work?

Yes, it is possible for an individual to legally and ethically collect unemployment insurance benefits from the IDES and still earn wages from a part time job.
 
Here's an example to show how it works:

WEEKLY BENEFIT AMOUNT: Stanley (fictitious name) lost his job several months ago. He has been collecting unemployment. His average Weekly Benefit Amount is $385 per week gross and $149 per week gross added to that for his dependents (his two children). Stanley's Weekly Benefit Amount of $385 is the part of Stanley's unemployment insurance which has nothing to do with his dependents.

CAN EARN UP TO 50% OF WEEKLY BENEFIT AMOUNT AND IT WON'T AFFECT UNEMPLOYMENT: Stanley can make up to half of his Weekly Benefit Amount and it will not affect his unemployment. Stanley's Weekly Benefit Amount is $385; half of his Weekly Benefit Amount is $192.

Stanley has found a job as a commission salesperson selling cosmetics. Under the IDES system for partial unemployment, Stanley can make up to $192 per week gross and it will not affect his unemployment So, if Stanley made $150 in a week in commissions for selling cosmetics, he can report that openly to the IDES as to wages he made in that week and it will not affect his unemployment insurance at all.

WHEN EARNINGS EXCEED 50% OF WEEKLY BENEFIT AMOUNT: If Stanley would earn $225 in commissions in a given week, that would affect his unemployment insurance benefits. For each dollar that is over the $192 (recall that the $192 is half of Stanley's Weekly Benefit Amount), he would lose dollar for dollar that amount of money from his unemployment insurance benefits. So, if Stanley made $225, then $33 ($225 minus $192) is subtracted from the $385 Weekly Benefit Amount in that week only.

INDIVIDUALS WHO ARE DRAWING UNEMPLOYMENT MUST REPORT EACH WEEK SEPARATELY: It is important to realize that the IDES has individuals who are drawing unemployment report each week separately so they can indicate if they are working (yes or no), and if they are working, how much they are earning in a particular week.

An individual can keep drawing unemployment until they go over a certain amount of money at which time they are taken off of the unemployment insurance roles. In Stanley's case, if he ever earned more than $385 in a given week (his Weekly Benefit Amount), he will be taken off the unemployment insurance roles. If he makes less than $385 thereafter, he would have to reapply for unemployment as if he were a brand new claimant.

When Stanley sells on commission, even though he is not paid his commission for several weeks or months down the road, he still should report to the IDES that he earned his commission in the week he actually made the sale (rather than saying that he wasn't working and not reporting this until several weeks or months down the road when he actually receives the check). This is an understandable source of confusion to many people and they do not know whether to report they are working when they are selling on commission (and they receive no actual check in their hand during that week).

If at all possible, the unemployment insurance recipient should report to Teleserv what the commissions will be for the sales they made in that week even though they won't receive payment for weeks or months down the road. Of course, in situations where the individual will not earn any commission unless the customer actually pays, that is a more complex situation and the unemployment insurance recipient should not report that they have earned money unless the likelihood that they will receive the money is a certainty.

As an attorney who assists employers with all kinds of employment law questions including unemployment insurance matters, I find that I am getting an increasing number of phone calls from confused employers who want to better understand how their employees can collect unemployment insurance benefits and still work for the company. This situation is being caused because there is an overall lack of work and lack of business in many companies, and their employees' hours are being dramatically reduced.

Questions about this topic or other management-side labor and employment law issues? Please contact WS Shareholder and Senior Attorney Nancy E Joerg at 630-377-1554, najoerg@wesselssherman.com, or visit our website.