How to Minimize the Risk of an EDD Audit?

EDD Audit Risk

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How do you minimize the risk of an EDD Audit?

There is no way to eliminate the risk of a government agency audit, audits are performed on a number of criteria, from a site sweep in which contractors are randomly audited by EDD to an unemployment claim from a 1099 worker who unwittingly files on your company. In whatever scenario, it is best to have all your ducks in a row when EDD audits. One of the first areas of scrutiny will be the status of your workers. If your workers are misclassified as 1099 contractors when they should be classified as W-2 wage-earning employees you can find yourself facing fines, back penalties owed to EDD and potentially even criminal charges based on lack of proper insurance, compliance issues, and Worker’s Compensation fraud charges. The money contractors save on benefits can never outweigh the penalties for misclassification. If you find yourself in an EDD audit, or if you are unsure about your contractor classification status, we’re here to help, call us anytime: 858-293-8755

AB-5 Classification overview:

  • Does each contractor have an independent business
    • EIN, business entity, business license, website, a client base?  For instance, construction workers hired by a construction company must have a valid contractor’s license with your State’s Contractor’s Licensing Board.
  • Scope of work each worker performs and compare that to the services your company performs?
  • Control: 
    • requiring workers to report to work at specific times
    • Dictating deadlines
    • Lack of proposals from workers
    • Providing equipment to workers
  • An independent contractor means the worker is working “independent” of your company.
  • How often are your workers paid?
  • Do you have a valid contract with each worker?