Several of our clients have recently been notified by the Illinois Department of Employment Security (“IDES”) that they have been randomly selected for audit. IDES is asking to examine payroll records, cash disbursement records and other tax and accounting records for the 2008 calendar year. Consistent with the initiative of the U.S. Department of Labor, IDES is auditing companies in Illinois to determine if companies are improperly engaging “independent contractors,” who should really be treated as employees subject to contribution for unemployment benefits. While the audits are “routine,” employers would be well served to consult with legal counsel before completing the required IDES questionnaire and submitting their records for examination as the consequences can potentially be quite severe. IDES may also share the information with the IRS, resulting in other taxes and penalties. Employers need to know the “ABC” test under the Illinois Unemployment Insurance Act and how it is applied by IDES. While a determination and assessment by IDES can be appealed, it is certainly preferable and far less costly to succeed at the audit level.