4 Tips to Avoid an EDD Audit of Your Business

The California Employee Development Department (EDD) is one of the largest state departments and is responsible for compliance with employment guidelines, maintaining employment records, and collecting payroll taxes.

Recent Construction Site Sweeps Explained

According to the California Contractors State Licensing Board (CSLB), this year alone, 74 people were cited for unlicensed contracting. CSLB’s article highlights the risk for general contractors who hire unlicensed contractors.

Independent Contractor vs Self Employed

An independent contractor is someone who provides a service to another company. They have the privileges of working for themselves like creating their own terms and hours, but they still work with businesses to provide services based on a contractual agreement. Independent contractors are not on the company’s structured payroll.

Top Questions About EDD Audits

If you are employing workers as a business, there’s a chance the Employment Development Department (EDD) may audit you. They conduct standard procedures to find any errors or discrepancies among the classification of W-2 and 1099 employees. There is a difference between the two, and the correct classification is imperative to ensure you and your business do not suffer penalties or fines during an audit.

EDD Audit prevention

Unintentional misclassifications may result in a $50 penalty for each W-2 form that was not filed for an employer classified as a contractor. The employer also faces penalties of: 1.5% of employee wages to compensate for income tax withholding, 40% of employee payroll taxes, 100% of matching employer payroll taxes plus interest on each of these penalties, and a Failure to Pay Taxes penalty of 0.5% of the unpaid tax liability for each month delinquent.

Can I issue a W-2 and a 1099 to the same individual?

W-2 forms and 1099 forms are meant for different workers. You cannot issue the same employee a W-2 and a 1099 at the same time. It’s confusing differentiating the two in your own business, understanding the differences are key to making sure your business avoids triggering an EDD audit.

Biden Administration Revokes Employer Friendly Independent Contractor Test

In early May of this year, the Biden Administration officially made the decision to revoke the previously adjusted Trump era ruling on independent contractor classification.

EDD Information Sheet

For employers who hire both W-2 and 1099 contractor workers, it is essential that the criteria for a worker to be classified as a contractor are met. To meet those requirements, one has to actually understand the requirements… a task that the labyrinthine language of government entities does not make simple.

CSLB Report of Stings/ Sweeps and Contractor Audits

CSLB Report of Stings/ Sweeps and Contractor Audits – On July 1st CSLB released the following article re: site sweeps. Are your workers correctly classified?

Is Your Business At Risk of a 1099 Contractor Audit?

An audit occurs when EDD launches an investigation into a business’s payroll records to determine whether they have correctly classified their employees. What many don’t know is that EDD audits involve more than passive risk factors like classification.