When the Employment Development Department (EDD) hits your business with an audit, it can be expensive and emotionally taxing for you as an owner. Fortunately, you can prevent this from happening in a few ways. Read below for a quick guide to avoiding EDD payroll audits.
Classify Workers Correctly
One way to avoid EDD payroll audits includes classifying your workers correctly as employees or contractors. When you pay wages to employees, they will usually be under a contract that outlines their role at your organization.
Contractors are not subject to the control and direction of your company. They complete work outside the usual scope of your business and engage in an independently established trade, which they perform for you. By properly classifying workers, you can avoid issues with the EDD.
Pay Your Employees the Correct Wages
Ensure you pay your employees their correct wages. It is important to stay current with federal guidelines regarding minimum and overtime wages. Otherwise, the EDD will likely audit you.
Be Accurate With Taxes
You can prevent an audit if you appropriately withhold income, employment, and payroll taxes. However, you must file quarterly reports with the necessary documents and forms. Failure to submit them on time or with incomplete or inaccurate information can lead to an audit.
Maintain Thorough Records
Maintaining thorough records of your business activity, including correct payroll and tax records and subcontractor agreements, is a good idea. Thanks to these records, the EDD will see that you run an ethical business, and you won’t incur any penalties.
Treat Your Employees With Respect
Focus on treating your employees well, particularly when it comes to their pay. Otherwise, they can file a complaint against you if they believe you treated them unfairly or are not following the law. These issues can lead to an EDD audit, so treat your employees with respect to reduce the possibility of complaints.
Contact Pershing Square Law Firm if you are looking for a tax audit lawyer who can help you challenge an EDD assessment of payroll taxes, income tax, and penalties. We have been able to reduce the assessment of all our clients who appealed in a timely fashion.
