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.
California EDD audits and investigations are triggered by companies who misclassify independent contractors as employees, through employee complaints, by random site sweeps, as well as those that stem from payroll tax discrepancies.
When EDD flags a company for audit or investigation of their business payroll taxes, it also triggers an audit to determine if the company has correctly classified their workers.
So How can you avoid an EDD audit?
1: Know your contractor’s business status.
Verify your 1099 contractors’ license status, their EIN validity, their online presence and be sure they are a valid business operating independently. This is at the core of the new ABCs of contractor classification.
2: Be very clear on what your company does vs what service your contractors perform.
A legitimate 1099 contractor does not perform the same work as a W-2 employee. If your company is a plumbing company and you hire additional help to manage increased workload, that additional help has to be for a special area which your W-2 workers do not perform, otherwise, your new helpers must be classified as W-2 workers.
3: Keep impeccable records.
When you’re busy it can be easy to let things slide. An EDD audit is fast-paced and having clear documentation of your 1099 contractors’ legitimacy can speed the closure of an incorrect audit as well as giving you the information you need to classify those workers who should NOT be 1099s as W-2s avoiding an audit down the road.
4: Don’t take your eye off the ball.
By this we mean: stay on top of your legitimate 1099 contractors’ license status. With the got1099 report and updates you can receive regular updates of your contractors CSLB and other business licensing status. If their license becomes suspended, revoked or expired, you’ll be the first to know.
How do got1099 reports help me avoid EDD audit?
Our reports provide verification of independent contractors license status and key facts about contractors’ businesses. We provide the facts so you can correctly classify your workers. With got1099, you have the power and insights to make better business hiring decisions.
Our verification process includes:
- Business entity status
- Tax license check
- EIN confirmation
- Web social research
- Professional license alerts
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got1099 is a business reporting company providing business analysis reports to companies re: their 1099 independent contractors We do not provide legal advice. Consult with your attorney relating to any legal issues.