August 2013

By: Nancy E. Joerg, Esq.

Illinois Department of Employment Security (IDES) audits take companies by surprise. These audits hit Illinois companies seemingly out of the blue. Rattled companies call me almost daily and initially ask me similar questions. I thought readers would be helped by the answers to some of the most frequent and immediate concerns. Here are six of them:

Question 1: Why was my company picked by the IDES for audit?

Answer 1: The IDES audit unit selects Illinois companies to audit for two basic reasons–because of purely random selection or because of an unemployment insurance claim by a prior worker.

Question 2: Why does an unemployment insurance claim by a prior worker trigger an IDES audit?

Answer 2: Not all such claims do—only those which create “classification controversies.”

Question 3: Explain what you mean by a “classification controversy”?

Answer 3: If an Illinois company treats a worker as a 1099-type Independent Contractor and therefore doesn’t report that worker’s wages to the IDES, the very act of that worker filing for unemployment insurance benefits will almost always trigger an IDES audit of that Illinois company. The IDES wants to discover and investigate why the company did not report that worker’s wages. The IDES wants to find out if the company should have paid money to the IDES on that worker.

Question 4: How will I know what year(s) I will be audited for?

Answer 4: You will be told this clearly in the Notice of Audit Letter that you will get in the mail. On page two of the Standard Notice of Audit Letter (at the top of the page) it tells you the precise year to be audited first. It is NEVER the current year. It is always the year prior.

Question 5: How many years will I be audited for?

Answer 5: The IDES auditor really does not know how many years the audit will cover when he or she begins the audit of your company. The IDES auditor applies the (newly implemented in 2013) $2,000 IDES Audit Rule. If what you owe for the first year being audited is over $2,000 (NOT including interest), then the IDES auditor will go back to the year before and audit that year. There used to be a $5,000 Audit Rule (much more employer friendly).

Question 6: Who from the company is allowed to interact with the IDES auditor?

Answer 6: Whomever the company owner designates (it does not have to be the owner). It does not have to be an attorney or an accountant. It should ideally be someone very familiar with the books and payroll records of the company.

These are six of the most frequent questions which I field from concerned Illinois companies under IDES audit. It is naturally upsetting to receive an IDES Notice of Audit Letter, and companies are understandably very anxious about the process and how best to prepare.

There are many key preparation steps a company should take as soon as they learn they will be audited by the IDES. For assistance with IDES audits and hearings (or for consultations on limiting your liability in the use of independent contractors), contact Attorney Nancy E. Joerg, who enjoys a nationwide reputation in assisting companies who use Independent Contractors of all types. Nancy Joerg can be reached at Wessels Sherman’s St. Charles, Illinois office: 630-377-1554.