Are you aware that your independent contractor can file for unemployment insurance benefits? You probably thought that only W-2 employees could apply for unemployment benefits. The truth is, even if you have a signed independent contractor agreement (which you should always obtain), 1099 workers can apply for benefits through the Illinois Department of Employment Security (IDES) office. Of course, not everyone who applies will be successful in obtaining unemployment benefits. IDES will ask for sources of income from the individual applying and will cross-check those sources against the individual’s social security number. When IDES finds out that the business did not report wages for that individual, that discrepancy should trigger an IDES audit of that company, even if the individual was classified by the company as an independent contractor.
Here’s where it gets tricky—in response to the COVID-19 pandemic, under new federal legislation passed by Congress, some independent contractors may be eligible to receive unemployment insurance benefits. However, they can only apply AFTER they have been denied (because they are not employees and, therefore, are not entitled to regular state unemployment insurance benefits). The independent contractor will receive a written denial of regular state unemployment benefits. You will want to obtain a copy of this written denial. Why? If a discrepancy triggered the IDES when the independent contractor applied for unemployment insurance benefits, you will likely receive an audit notification, and these written denials will be valuable protection against claims that you underreported wages. In addition, it is important that you protest/respond to every Notice of Claim, making it clear that the claimant is an independent contractor and not an employee.
If you have questions or concerns regarding a Notice of Claim you received, please contact us—we can help you find the right resource.
Not sure how to classify a worker? Check out our blog Employee vs. Independent Contractor – What is the difference?
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