If you are living in the California area, then you may be familiar with the EDD Audit Process. If you are unfamiliar with the term, then read on to discover if you could be audited. The EDD Audit process begins with the mailing of notification that puts a business on notice that they are going to be audited for payroll taxes. Businesses must then prepare their records for audit, with human resources taking the lead in making sure that the company payroll records are in order according to federal guidelines. The EDD Audit process can be long and painstakingly difficult for the company that must answer to the audit. The EDD has its own IRS that works with the federal IRS in making the determination of satisfactory payroll taxes being taken out appropriately and paid. The audit comes with a list of documents that the auditors need the company to produce, along with a list of questions about payroll taxes that the company must answer for the EDD auditors.

All About The EDD Audit Process

The EDD Audit process is conducted by the California Employment Development Department (EDD) . Payroll taxes are a big deal in California, who has the distinction of paying more federal payroll taxes than any other state. In addition, a major portion of the state’s budget is made up from state payroll taxes. The California EDD has the responsibility of collecting payroll taxes, enforcing the collection and doing an audit on businesses in and around the state of California. The primary function of the audit is to determine how a business classifies each worker. Understanding how to classify each worker correctly will lend well to your business during the EDD audit process. Misclassification could mean that you are paying the EDD less money than owed under federal law. This is obviously a concern for the EDD auditor which could lead to a red flag for your business practices and the possibility of a fine under federal laws. The misclassification often comes when it is not correctly determined if a worker is an employee or an independent contractor. The EDD and the federal IRS will use a list of determining factors that will classify an employee or an independent contractor.

As a California business who may have an EDD audit coming up, make sure and thoroughly understand the audit process. Work with the California Employment Development Department or EDD for solutions needed to help you do well in the audit process. Gather all needed documents and answer all needed questions by the EDD auditors to ensure that your business is following federal legal practices for its payroll taxes.