By: Nancy E. Joerg, Esq., Senior Attorney and Shareholder, Wessels Sherman Joerg Liszka Laverty Seneczko P.C.
Many companies who use independent contractors do not realize that under the Illinois Unemployment Insurance Act, there are many specific tests for various kinds of independent contractors. [Even the Illinois Department of Employment Security (IDES) auditors who audit companies do not always themselves know all of the different tests for independent contractor status and exemptions from employment!]
It is essential that a company using independent contractors knows the specific test for their specific kind of independent contractors so that the company can gather the necessary proof to establish independent contractor status if they are ever audited by the IDES.
The following is a list (not all inclusive) of some of the independent contractor tests under the Illinois Unemployment Insurance Act:
1. Persons free from the employer’s control and direction who are engaged in an independent trade, occupation, business or profession and who perform services which are outside the course of the employer’s business or performed outside the place of business. (Section 212)
2. Owner-operators of their own trucks but only under certain specified circumstances as provided in the Act. (Section 212.1)
3. Direct sellers of consumer goods outside of a retail establishment if the remuneration for such service is directly related to sales, rather than hours worked, and the services are performed pursuant to a written contract that provides that the person shall not be treated as an employee for federal tax purposes. (Section 217)
4. Real estate salesmen to the extent that such services are compensated for by commission. (Section 217)
5. Real estate closing agents when their contract with the title insurance company specifies that they are not employees and they are paid on a per closing basis. (Section 217.1)
6. Real estate appraisers whose written employment contract provides that they are paid on a fee per appraisal basis and that they are free to accept or reject appraisal requests from that entity or from other entities. (Section 217.2)
7. Persons under the age of 18 who deliver newspapers or shopping news and any persons who deliver newspapers or shopping news to the ultimate consumer, if substantially all of their remuneration is on a “per piece” or output rather than an hourly basis and they work under written contracts that indicate they are not to be treated as employees for federal tax purposes. Freelance editorial and photographic work for newspapers is also exempt from employment. (Section 225)
8. Insurance agents who are paid solely by commission. (Section 228)
9. Golf caddies if they are full-time students under the age of 22 and are paid directly by a golf club member or by the golf club on behalf of a member. (Section 232.1)
In most situations, the services of actors, actresses, singers, musicians, models and other “talent” constitute employment, not independent contractor status. However, a talent or modeling agency that is licensed under the Private Employment Agency Act is not the employing unit with respect to the performance of services for which an individual has been referred by the agency. (Section 204)
Another tip: Some of the payments that a company makes to individuals are really just payments for “referrals of work” or “reimbursement of expenses.” These payments should not be considered wages. Be sure to point this out to the auditor. The auditor could overlook this referral fee issue and consider these kinds of payments to be wages and therefore payments to employees.
If the company itself does not claim the exemption from employment, the auditor may not necessarily bring these exemptions to the attention of the company either because the auditor feels it is up to the company to raise these legal defenses (or because the auditor simply is not aware of these exemptions).
The moral of the story here is to look over the kinds of independent contractors you use and be ready (when and if you are audited) to prove these exemptions. If you prove the exemptions, then of course you will not owe any back unemployment insurance contributions (taxes) on these workers.
Questions? Call Attorney Nancy E. Joerg of Wessels Sherman’s St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com.
Nancy Joerg is an advocate and attorney for a wide variety of businesses. She defends them in their use of independent contractors. She drafts, reviews and updates independent contractor agreements. She defends companies before the Illinois Department of Employment Security (IDES) in IDES audits and unemployment insurance hearings. She also defends companies before the Internal Revenue Service (IRS), the Equal Employment Opportunity Commission (EEOC), the Illinois Department of Human Rights (IDHR), the Illinois Department of Labor (IDOL), and other agencies and courts.
Nancy Joerg is a managing shareholder of Wessels Sherman, a management-side labor and employment law firm.