EDD Audit Procedures
in California

The California Employment Development Department (EDD) conducts audits to ensure that employers are properly reporting and paying payroll taxes, such as:

Random selection
Mismatch between IRS and EDD filings (e.g., 1099 vs. W-2)
Independent contractor reporting (Form DE 542)
EDD receiving a claim for UI or SDI from a worker treated as an independent contractor
Late or missing payroll tax filings
Tips, referrals, or whistleblower reports

The audit typically covers:

The last three calendar years
All payments to workers and service providers
Whether workers were properly classified as employees or independent contractors
Whether payroll taxes were correctly calculated and paid

Initial Contact
- You’ll receive a Pre-Audit Questionnaire and a letter scheduling an audit.
Document Request
- EDD will request payroll records, wage reports (DE-9, DE-9C), 1099s, W-2s, tax returns, check registers, and general ledgers.
On-Site or Remote Audit
- An EDD auditor may visit your office or conduct the audit remotely.
- They will examine whether:
  - All workers were properly classified
  - Wages and withholdings were properly reported
Interview
- The auditor may interview the employer and select workers or contractors.
Audit Report
- You’ll receive a Notice of Assessment if additional taxes, interest, or penalties are due.
Protest & Appeal
- You can protest the assessment within 30 days and request an appeal hearing.