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.
No one wants to find themselves under audit. Whether from IRS, EDD CFTB, or other government agencies, audits are stressful and time-consuming. When it comes to facing an audit, how you react at the start of the audit can make all the difference.
When determining whether your workers should be classified as employees or independent contractors, it’s critical to ensure that you are closely following the Employment Development Department’s (EDD) strict guidelines.
The Employment Development Department (EDD) is the largest tax collection agency in the state of California. They’re responsible for collecting payroll taxes from over 17 million workers annually, accounting for over $31 billion in tax payments. The agency also offers various services to California residents through the Job Service, State Disability Insurance (SDI), Workforce Management, and Labor Market Information programs.
The wrong choice can mean thousands of dollars due to IRS, EDD, and CA State entities for back payroll taxes, worker’ compensation, fines, and fees. In extreme cases, misclassified workers can open a business up to criminal fraud charges for insurance fraud (think Workers compensation insurance avoidance)
The Employment Development Department (EDD) is the largest tax collection agency in the state of California. They’re responsible for collecting payroll taxes from over 17 million workers annually, accounting for over $31 billion in tax payments. The agency also offers various services to California residents through the Job Service, State Disability Insurance (SDI), Workforce Management, and Labor Market Information programs.
When CA EDD did a site sweep, Ryan found himself facing a potentially catastrophic EDD Audit.
The primary goal of the California Employment Development Department is to investigate companies whose employees are potentially misclassified as contractors when they should be classified as employees.
Assembly Bill 5, which required companies to reclassify most independent contractors as employees, is hurting employees.
An EDD audit is common if the EDD is concerned that your business has not correctly paid employment-related taxes or has mislabeled employees as independent contractors. An independent contractor who files for unemployment or disability benefits will raise suspicion with the EDD because contractors are not eligible for these programs.