Are You Prepared for a California EDD Employer Audit

Are you prepared for a California EDD employer audit? Did you know the California Employment Development Department (EDD) regularly audits most California employers to monitor compliance with worker classification, wage reporting, and California payroll tax? If you are a California employer, you should always be prepared for and expect a California EDD payroll tax audit.

Important Elements of Being Prepared for a California EDD Employer Audit:

The California EDD regularly audits employers in the State of California
California employers must accurately withhold and report CA Personal Income Tax (PIT), Unemployment Insurance (UI), CA State Disability Insurance (SDI), as well as the Employment Training Tax (ETT).
An EDD Employer audit seeks to evaluate each employer’s compliance with all reporting requirements, accurate classification of workers, proper payment of wages, and timely submission of collected taxes and wage-related/employment withholdings.

What Can a California EDD Audit Cover?

A California EDD audit can cover a thorough review of all of your employees’ classifications and wages, all employment records, and the tax returns you have provided. They are experts at creating issues, especially around reclassifying independent contractors as employees, or “exempt” employees as actual hourly employees. The integrated services of Janathan L. Allen, APC, and Allen Barron, Inc. aggressively defend these issues for our clients and ensure that appropriate systems, controls, and documentation are in place to answer these types of questions. This is one of the most substantial and valuable services we can bring to our clients, and an issue we regularly fight on their behalf with the EDD.

While the California EDD regularly audits San Diego employers, a single employee complaint can trigger an immediate audit, posing a significant challenge for your company. Examples include (but are not limited to) every application for unemployment, state disability, or even paid family leave, as well as a fired employee who complains to a California agency that you, as an employer, “…never gave me the breaks they were supposed to.”

A California EDD audit takes a deep dive into your break policies, records for existing and former employees, and documented procedures, income, and associated taxes. Violations result in substantial penalties, not only at the state level but also with the IRS. Wage and hour issues can become quite expensive, and the process can have a measurable impact on your business’s profitability by diverting your focus from day-to-day operations to managing an audit.

It is also important to note the shared communications between all tax agencies. An audit by any California tax agency or the IRS will usually result in additional investigation by other California tax agencies as well as the IRS, and vice versa.