1. An EDD Notice Determines the First Response
EDD may sample payroll transactions, interview workers, and compare payments with quarterly returns before asserting additional tax.
Confirm the Agency, Employer, and Audit Period
EDD administers Unemployment Insurance (UI), Employment Training Tax (ETT), State Disability Insurance (SDI), and state Personal Income Tax (PIT) withholding. IRS, Franchise Tax Board, and sales tax notices follow other procedures. Match the employer name, EDD account number, and quarters to the notice. Check whether it concerns the business, a related entity, or a payroll provider's filing. Federal payroll tax compliance duties do not replace the state response.
Distinguish the Notice from the Assessment
Check the document's title before deciding whether to submit records, dispute proposed figures, or petition.
| Document or Stage | What It Means | Immediate Priority |
|---|---|---|
| Audit appointment or records request | EDD is gathering evidence | Confirm scope and organize the requested records |
| Proposed Notice of Assessment, if issued | EDD has identified proposed adjustments | Review calculations and discuss disputed findings |
| Notice of Assessment | EDD has formally asserted a liability | Evaluate a timely CUIAB petition |
| Jeopardy assessment | An accelerated assessment procedure applies | Obtain immediate deadline-specific review |
Audit appointment or records request
- What It MeansEDD is gathering evidence
- Immediate PriorityConfirm scope and organize the requested records
Proposed Notice of Assessment, if issued
- What It MeansEDD has identified proposed adjustments
- Immediate PriorityReview calculations and discuss disputed findings
Notice of Assessment
- What It MeansEDD has formally asserted a liability
- Immediate PriorityEvaluate a timely CUIAB petition
Jeopardy assessment
- What It MeansAn accelerated assessment procedure applies
- Immediate PriorityObtain immediate deadline-specific review
Preserve the notice and mailing evidence. A records deadline is not an assessment appeal deadline.
2. Payroll Records and Worker Status Define the Audit
Payroll records show what was paid. Contracts and daily work records help determine whether those payments were employee wages.
Reconcile DE 9 and DE 9C with Actual Payments
Compare Forms DE 9 and DE 9C with payroll registers, W-2s, 1099s, bank transfers, and invoices. Flag missing workers, duplicate entries, reimbursements, and payments booked to the wrong quarter or entity. Obtain the payroll provider's filing confirmations. Preserve original exports and explain corrections in a separate schedule rather than replacing source records.
Document How Each Contractor Actually Worked
A contractor agreement or Form 1099 cannot settle worker status. Gather invoices, schedules, messages, licensing records, and evidence showing who set rates, controlled assignments, and supplied equipment. Verify the existence of an independent business, including outside customers where relevant. Actual work practices matter more than labels. Related wage claims may need a separate labor and employment law review.
Apply the Classification Test for the Relevant Years
For work performed from January 1, 2020, Unemployment Insurance Code § 621(b) generally applies the ABC test unless an exception governs. The hiring entity must establish freedom from control, work outside its usual business, and an independently established trade. Some exempt relationships use the Borello test or occupation-specific rules. Earlier periods may require other common-law standards. Apply the rule in force for each worker and period.
3. Proposed Tax Adjustments Require Separate Verification
Worker misclassification does not establish every dollar of liability. Test the proposed figures by worker, quarter, and tax type.
Check Taxable Wages, Deposits, and Penalties
Request a breakdown by worker, quarter, payment, and tax. Check it against deposits and the rates or wage limits applicable to each year. UI, ETT, SDI, and PIT withholding can have different tax bases. Review interest and penalties separately; a classification finding does not explain every charge. California removed the SDI taxable wage cap starting in 2024, so the year under examination matters. Support corrections with original records rather than assuming an amended payroll form resolves the assessment.
Use the Closing Conference to Clarify Disputed Findings
EDD's audit guidelines contemplate a closing interview and, when applicable, a pre-assessment conference with the auditor's supervisor. Ask how estimates were derived and whether missing documents could change the findings. If EDD extrapolated from a sample, compare that sample with complete records for the affected periods. Supply relevant evidence while the audit remains open. After it closes, an employer may request access to the audit file, subject to disclosure rules. A conference does not suspend a later petition deadline.
Separate EDD Findings from Other Tax Proceedings
EDD and IRS decisions involving the same workers follow different tests and appeal routes. An EDD finding does not automatically establish federal liability. The related California employment tax comparison explains the distinction. Keep any FTB or CDTFA notice in a separate file. An employer's location does not change the statewide EDD rules or CUIAB deadline.
4. A Notice of Assessment Opens the CUIAB Petition Process
A formal assessment makes petition rights and filing dates critical. Continued discussions with the auditor cannot replace a timely petition.
Track the Ordinary and Accelerated Deadlines
Under Unemployment Insurance Code § 1222, a petition is generally due within 30 days after service of a qualifying assessment notice; CUIAB's guidance refers to the mailing date. An administrative law judge may grant up to 30 additional days for good cause, but no extension is automatic. Jeopardy assessments have a shorter, nonextendable period under § 1221. Confirm the cutoff immediately, as the statute and CUIAB guidance describe its day count differently.
Prepare a Petition That Identifies the Disputed Issues
A written petition to CUIAB should identify the employer, EDD account number, assessment date and periods, and disputed findings. Include a notice copy, contact information, and signature. Tie objections to records showing why worker classification, wage amounts, credited payments, or penalties are wrong. Follow current CUIAB filing directions and keep proof of timely submission. EDD may respond before an administrative law judge hears the matter and issues a decision. A Board appeal has another deadline.
Keep an IRS Examination on a Separate Track
EDD tax petitions belong before CUIAB, not the California Office of Tax Appeals or U.S. Tax Court. Federal notices have separate deadlines. The existing business tax lawyer guide explains IRS record reconciliation rather than EDD petitions. Calendar both agencies' deadlines; a state filing does not preserve federal review rights.
21 Sep, 2026
