The Employment Development Department (EDD) has the authority to conduct audits for two main purposes. The first purpose is promoting voluntary compliance. The other is verifying that employers remain compliant with the laws and regulations enacted by the EDD.
However, you should know two different classifications of audits: verification and request. That’s why we have created this outline to briefly describe the differences between verification and requesting EDD audits.
Verification Audits
Verification audits occur on a completely random basis of selected employers or via other types of selection criteria. A variety of selection criteria can determine whether the EDD will select an employer. These criteria can include the type of industry, payroll size, number of workers, location, and liability. Keep in mind that your verification audit can be due to one of these reasons or a combination of them.
What Triggers a Verification Audit?
Although considered routine, verification audits may still arise due to:
- Minor discrepancies in payroll tax filings
- Inconsistent reporting across quarters
- Industry-specific audit cycles
- Random selection for compliance review
For example, if reported wages fluctuate significantly without a clear explanation, the system may flag the account for verification.
Employers can learn more about how these reviews operate through the official EDD Employer Audit Program, which outlines the agency’s approach to ensuring payroll compliance.
Scope and Focus of Verification Audits
Verification audits typically focus on:
- Worker classification (employee vs. independent contractor)
- Payroll records and wage reporting accuracy
- Timely filing of tax returns
- Compliance with unemployment insurance contributions
These audits are often limited in scope and may involve reviewing records for a defined period, such as the previous 1–3 years.
From a legal standpoint, these audits are primarily fact-checking exercises, not enforcement actions, at least at the outset.
Employer Responsibilities During a Verification Audit
Employers undergoing a verification audit are expected to:
- Provide payroll records, tax filings, and supporting documentation
- Respond to inquiries within specified timelines
- Allow access to relevant financial data
Failure to cooperate can escalate what would otherwise remain a routine audit into a more serious matter.
For businesses seeking guidance on compliance and audit readiness, our articles on EDD audits may help structure documentation and avoid unnecessary exposure.
Request Audits
The main difference between verification and a request EDD audit is that a request audit is not random. These types of audits occur due to an identified reason to verify that a specific employer is compliant with EDD legislation. These identified reasons usually concern verifying a benefit, status, or delinquency assignment. The EDD auditor’s role in these cases is to ensure your business is reporting its payroll properly and accurately.
What Is a Request Audit?
A request audit is a more targeted and potentially serious investigation initiated when the California Employment Development Department identifies a specific issue or receives information suggesting non-compliance.
Unlike verification audits, request audits are not random. They are triggered by identifiable risk factors and often involve deeper scrutiny.
These audits typically begin with a formal notice requesting specific documents, records, or explanations related to suspected discrepancies.
Common Triggers for Request Audits
Request audits are frequently initiated due to:
- Employee or contractor complaints
- Misclassification allegations
- Large discrepancies between reported wages and industry norms
- Prior audit findings or unresolved issues
- Referrals from agencies such as the IRS or Department of Labor
For example, if a worker files a claim asserting they were misclassified as an independent contractor, the EDD may launch a request audit to investigate.
Scope and Legal Implications
Request audits are broader and more detailed than verification audits. They may include:
- Full payroll history reviews
- Examination of contracts and worker agreements
- Interviews with employees or contractors
- Cross-agency coordination
The consequences of a request audit can be significant, including:
- Assessment of unpaid payroll taxes
- Penalties and interest
- Reclassification of workers
- Potential legal action
This is where the distinction becomes critical: while a verification audit may confirm compliance, a request audit can lead to enforcement and financial liability.
Responding to a Request for an Audit
Employers must respond carefully and strategically. Key steps include:
- Reviewing the audit notice in detail
- Gathering all requested documentation
- Ensuring consistency across records
- Avoiding incomplete or inaccurate submissions
It is essential to understand that anything submitted during a request audit can be used to support findings against the business.
Guidance on responding to audit notices is available through Here’s Why You Should Never Ignore an EDD Audit, which explains employer obligations and timelines.
Work With an Attorney
If you’re the subject of verification or a request for an audit, you might feel stressed. Tax audits usually result in hefty fines ranging from thousands to hundreds of thousands of dollars that your business must pay. Plus, upon receiving the audit, you only have a short time frame in which you can contest it.
A payroll tax attorney can help you respond to an assessment and, where the records support it, argue for a reduction. If you are unsure which type of audit you are facing, our note on what to expect during an EDD audit sets out the sequence.
