The lead-up to an employment tax audit can be one of the most stressful times for a business owner. To avoid legal missteps, it is important to gain a thorough understanding of what such an audit entails.

In this feature, experienced employment lawyer Elnaz Masoom provides an outline of the process involved in an employment tax audit by California’s EDD, what business owners should expect, and what steps should be taken in the aftermath.

This article covers the general process and important issues that we see come up in the course of California’s Employment Development Department tax audits, with a focus on the employment misclassification audits of businesses that utilise the services of independent contractors. Substantive legal analysis of California’s independent contractor laws is not part of this content.

A General Overview of an Audit by the EDD in California

The EDD audit process will always begin with a notice from the EDD. Oftentimes, this notice will come along with a list of documents or information being requested, a questionnaire, and a general description of the audit process. Following this initial communication, the EDD will set up a visit or a phone call to discuss the documents produced and ask follow-up questions. Once the auditor reviews the available records, the auditor will provide you with a Proposed Notice of Assessment either verbally or in writing, followed by the Notice of Assessment setting forth the findings and your liability assessment. If...

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