Are you concerned about surviving a California EDD business payroll audit? California businesses are audited every three years by the Employment Development Department (EDD). The California EDD business payroll audit is considered “education outreach” but is a serious audit that carries the potential for heavy fines, penalties, back taxes and interest. The EDD wishes to ensure that entitled employees are receiving the benefits to which they are entitled and appropriate payroll tax deductions have been withheld and reported.
The San Diego California tax attorneys at Allen Barron represent you during the EDD audit, and manage all communications and meetings with EDD auditors. We manage the initial conference where the EDD seeks to learn about your unique business and the way you manage it. We review your record-keeping methodology and how you manage accounting records. The California Unemployment Insurance Code (CUIC) requires all California employers to maintain payroll records that capture a “true and accurate account of all workers” including those who are presently employed, laid off, on a leave of absence or independent contractors.
The EDD has given particular attention to all independent contractors looking for relationships that are actually what the State considers to be misclassified employees. The rules governing independent contractors have changed and it is important to be prepared for the new rules interpretation. Misclassification can result in a civil penalty of up to $25,000 per employee and back pay, benefits and costs in the hundreds of thousands per employee. This is a primary focus point for the EDD.
What is the EDD Reviewing During a California EDD Business Payroll Audit
The purpose of the California EDD business payroll audit is to ensure that all work your company your disbursed payment for has been properly classified as employees or independent contractors per the recent guidelines of the State Supreme Court and at the appropriate rate(s). The EDD will want to discuss any form of unreported payment or barter systems in place for personal services as well as the nature of the relationships between you and those who do work for your business. The auditor will have conversations with you and your employees as well as independent contractors to determine for themselves what the work relationship actually entails. This is why it is so important to be represented by an experienced tax attorney during a California EDD business payroll audit.
In addition, for those selected for a “complete audit” the EDD will verify that gross wages and taxable wages have been properly reported and that your company has properly withheld and reported personal income tax for all employment wages paid to employees.
This is serious business, and the EDD is aggressively looking to raise additional taxes and revenues – especially in the misclassification of independent contractors and internal processes for capturing and reporting hours worked and wage deductions. The tax attorneys at Allen Barron protect your interests, and help you to accomplish the best possible outcome in your California EDD business payroll audit. We invite you to contact us or call to speak with an experienced EDD business payroll audit attorney personally for a free consultation at 866-631-3470.