Why are Auditors Using Questionnaires for an IDES Audit?

January 2011
By: Nancy E. Joerg, Esq.

When clients are audited by the Illinois Department of Employment Security (IDES) and the company being audited uses independent contractors, the IDES auditor will often ask the company to fill out a Questionnaire called the Worker Relationship Questionnaire. The IDES auditor will evaluate the company's responses to help decide whether the workers at issue in the audit are really independent contractors or misclassified employees under the IDES test for independent contractor status.

Many clients become very anxious in filling out the Questionnaire. The questions are somewhat confusing. It is difficult to know exactly how to respond so that it is clear to the auditor that the workers at issue are really independent contractors and not employees.

THREE SETS OF QUESTIONS: Clients wonder why the auditor is using a Questionnaire. If you study the strict three-part test [Section 212(A), (B), and (C)] that the Illinois Department of Employment Security uses to decide who is an independent contractor and who is an employee, you will realize that the Questionnaire is divided into three sections: the first set of questions asks about Section 212(B), the next set of questions asks about Section 212(C), and the last set of questions asks about Section 212(A).

REGULATIONS: There are also regulations to Section 212(A), (B), and (C) [56 Ill. Admin. Code Sec. 2732.200] which help to explain the IDES view of each part of the three-part test. Upon studying the regulations, it will become somewhat clear as to how the questions should be answered on the Questionnaire (to result in a finding by the auditor of independent contractor status for IDES purposes).

RESPONSES ARE CRUCIAL TO DEFENDING INDEPENDENT CONTRACTOR STATUS: The questions should of course be answered truthfully, but companies should be aware that the answers on the Questionnaire are crucial in defending independent contractor status and therefore should be answered thoroughly and carefully. Work with an attorney very experienced in defending companies who use independent contractors, before filling out the Questionnaire and handing it to the IDES auditor. This is not a task to be handled lightly. This is your legal defense!

Questions? Call Attorney Nancy E. Joerg of Wessels Sherman's St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com.

How Employers Should Fill Out the IDES Audit Questionnaire

December 2009
By: Nancy E. Joerg, Esq.

When an Illinois Department of Employment Security (IDES) auditor audits a company that uses independent contractors, the IDES auditor almost always gives the company a questionnaire to fill out. The IDES has been using the same basic multi-page questionnaire called the Worker Relationship Questionnaire for several decades.

The purpose of the Worker Relationship Questionnaire is to obtain detailed information from the company about the alleged independent contractor relationship. The Questionnaire is designed so that it can be filled out by the company or by the auditor. (This is at the auditor's discretion.) At the end of the Questionnaire, there is a space for the individual who filled out the questionnaire to sign that they indeed filled out the questionnaire and provided the responses.

If a company has several kinds of independent contractors, then the auditor will usually ask the company to fill out several Worker Relationship Questionnaires. For example, many years ago a client company of our law firm was an architectural business that used independent contractor architects, engineers, interior designers, draftsmen, et al. The company, therefore, filled out many different Worker Relationship Questionnaires - each one representing that kind of specialized independent contractor. (It is of course a matter of strategy for a company to decide how many Worker Relationship Questionnaires they will fill out and which independent contractors will be in which grouping. This is a decision for a company and its attorney to carefully evaluate.)

The Worker Relationship Questionnaire is divided into three main sections. Each section represents one part of the strict three-part test [Section 212(A), (B), and (C)] that the Illinois Department of Employment Security uses to decide who is an independent contractor and who is an employee.

Possibly the trickiest part of filling out the Worker Relationship Questionnaire is deciding how to describe the type of business the company is in, and the type of business the independent contractor is in, and whether the company and the independent contractor are in the same course or kind of business. Course or type of business is a crucial part of Section 212(A), (B), and (C).

Remember that if a company fails any one part of the three part test, then the worker at issue will be found to be an employee for IDES purposes.

Clients sometimes ask me what will happen if they refuse to fill out the Worker Relationship Questionnaire. Failure to cooperate with an auditor and provide the auditor with requested information only ends up hurting the company. This is because the legal burden of proof rests on the company during an audit. The legal responsibility to prove that a worker is an independent contractor rests upon the company and not upon the auditor.

Simply stated, there is a legal presumption that the worker is an employee-unless the company can prove the worker is an independent contractor. From a practical standpoint, this means a company must provide proof, evidence, information and documents to the auditor to convince the auditor that the worker is an independent contractor. In the absence of such proof, the auditor is free to find that the worker is an employee and therefore the auditor will assess back unemployment insurance contributions onto the company being audited. (There is also 24% per year interest added to that assessment.)

Be very careful in filling out the Worker Relationship Questionnaire. Even one wrong answer can create legal barriers to proving independent contractor status. Seek the assistance of an attorney experienced with IDES audits.

Questions? Please contact WS Shareholder and Senior Attorney Nancy E. Joerg in our St. Charles, IL office at (630) 377-1554, or najoerg@wesselssherman.com.

Employers Wonder: How Can my Independent Contractor File for Unemployment Insurance Benefits?

March 2011
By: Nancy E. Joerg, Esq. 

I frequently get phone calls from clients (employers) who wonder how their independent contractors can go to the local Illinois Department of Employment Security (IDES) office and apply for unemployment insurance benefits.

The most common comment I hear is "I thought that only employees could apply for unemployment insurance benefits."
 
Even when independent contractors sign a valid independent contractor agreement, they are not actually prohibited from going to the Local IDES Office and applying for unemployment insurance. Any individual can walk into the Local IDES Office and apply for benefits; of course, not all these individuals will be ultimately successful in obtaining unemployment insurance benefits.

IDES WILL ASK FOR ALL SOURCES OF INCOME: If an independent contractor applies for unemployment insurance benefits (either going in person to the Local IDES Office or applying online), they will be asked for all sources of income that they earned over the past year. Usually, the last "30 day employer" is the company who is "charged" for the unemployment insurance benefits that this individual might obtain.

IDES WILL CROSS CHECK SOCIAL SECURITY NUMBER WITH SOURCE OF INCOME: In the course of writing down/reporting all the sources of income for that individual for the past year, the name of a company where the individual worked as an independent contractor may arise. The IDES will cross check the individual's Social Security Number with that source of income. If the IDES finds out that the IDES did not report wages to the Social Security Number of that individual, that discrepancy will normally trigger an IDES audit of that company-even if the individual was classified by the company as an independent contractor.

Independent contractor/employee discrepancies are the biggest source of leads for IDES audits: When an independent contractor applies for unemployment insurance benefits, the IDES will not assume that the individual is indeed an independent contractor. Rather, the IDES will apply its legal tests to the fact pattern and see whether the IDES agrees that the individual is an independent contractor. The two most common IDES independent contractor legal tests are: 

1. Section 212.1: If the individual applying for unemployment insurance benefits is a truck driver/owner-operator, then the IDES may apply the legal test known as Section 212.1 (truck owner-operator) of the Illinois Unemployment Insurance Act. 
2.  Section 212(A), (B), and (C): If the individual applying for unemployment insurance benefits is a "regular independent contractor" (not a truck owner-operator), then the test most likely to be applied is Section 212(A), (B), and (C) of the Illinois Unemployment Insurance Act. 

IDES WILL STILL LOOK AT THE ELIGIBILITY OF THE EMPLOYEE: If the Local IDES Office determines that the individual trying to obtain unemployment insurance benefits is really an employee and not an independent contractor, then the IDES will still evaluate the fact pattern to see if this newly classified "employee" is eligible for unemployment insurance benefits. For example, an individual can be found to be ineligible for unemployment insurance benefits because the individual committed misconduct. If an individual is guilty of misconduct, the individual will be denied unemployment insurance benefits even though the IDES found the individual to be an employee (and not an independent contractor).

Even when individuals are found to be ineligible by the IDES for unemployment insurance benefits, if a company has classified them as independent contractors (but the IDES has deemed them to be employees), this will usually lead to an IDES audit of the company.

IF AN INDEPENDENT CONTRACTOR FILES FOR UNEMPLOYMENT, ASSUME YOU WILL BE AUDITED BY IDES AND BE PREPARED: If one of your independent contractors files for unemployment insurance benefits, assume you will eventually be audited by the IDES. Prepare yourself as thoroughly as possible for that coming event. One good way to prepare for an IDES audit is to fill out a Worker Relationship Questionnaire (the multi-page document that IDES auditors use to determine whether an individual is an independent contractor or an employee).

If readers would like a free copy of the questionnaires that IDES auditors use, please contact Wessels Sherman Legal Assistant Tammy Nelson at 630-377-1554 or via email at tanelson@wesselssherman.com.

  

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.