As a California business owner, you have a lot of responsibilities. As such, receiving a notification of an EDD (employment development department) audit is frustrating, but you shouldn’t ignore it. If you need help, read this guide on what you should do if you get an EDD audit.
What Is an EDD Audit?
An EDD audit occurs when California’s EDD office launches an investigation on a business’s state payroll tax records. This audit determines if the company classified a worker as an independent contractor instead of an employee.
However, other situations can trigger an audit, such as paying workers off the payroll, failing to distribute 1099s to individuals who work as contractors, or business owners paying themselves below their market value. Ultimately, if the EDD has suspicion of misclassifications and payroll issues, they will launch an investigation.
Contact an EDD Lawyer
If you get an EDD audit, you should first contact an EDD tax lawyer because they have experience with these types of audits. The lawyer will assess your case and advise you to gather relevant documents to help your defense. The more records and relevant information you’re able to present, the easier your audit process will be.
What Information To Gather
The most common documents the EDD requests are payroll records, bank statements, federal income tax returns, and employee registers. It’s also best to provide wage information for specific time frames. When the EDD receives your information, the audit begins. It’s also important to note that the EDD may request additional records and documents.
Potential Penalties
Depending on the nature of your EDD audit, you may face financial penalties. For instance, paying back a percentage of unpaid taxes or paying a fine for each unreported employee can happen. The potential penalties and fines can cause a financial strain on businesses. And that’s why it’s important to have a lawyer review your audit and relevant documents.
If You Disagree With the Final Report
After the audit, the EDD will present a final report that states whether you’re responsible for paying fines and penalties or not. If you disagree with the report, you have the right to file an appeal and present further evidence. In addition, your lawyer can represent you in your appeal hearing.
If you need help navigating the complicated EDD audit process, the experts at Pershing Square Law Firm are here for you. Find out more about our services by calling us today.
