What is an EDD Benefit Audit?
*The following article was updated in February 2022*
If you’re a business based in California — San Francisco, Los Angeles and San Diego — you’ve likely had dealings with the Employment Development Department (EDD). It is the responsibility of the EDD to collect payroll taxes, and it conducts payroll tax audits of companies and businesses. In addition, the EDD conducts what’s called Unemployment Insurance (UI) benefit audits. The federal-state unemployment insurance system (UI) helps people who have lost their jobs by giving them temporary wage replacement. The EDD conducts what are known as benefit audits to protect the UI program.
EDD benefit audits are conducted on a daily, weekly, and quarterly basis. They are done by matching the information provided by employers against information provided by individuals who have filed a UI claim. According to EDD, there are four types of benefit audits:
New Employee Registry Benefit Audit
This is based on information provided by California employers to determine if an individual received UI benefits after returning to work and failed to report their work and earnings. This is used for daily audits.
National Directory of New Hires
This is based on information provided by employers nationwide to determine if a claimant received UI benefits after returning to work and failed to report their work and earnings. This is used for weekly audits.
Quarterly Wage Earnings
This is based on earnings reported by employers to the EDD to determine if a claimant received benefits while working and failed to report their work and earnings. This is used for the quarterly audits.
Finally, the EDD cross-matches wages earned in other states to determine if a claimant received benefits while working in another state. This is also done on a quarterly basis.
If the EDD determines that an individual received benefits they should not have received, or if they were overpaid, they will be assessed that amount along with any applicable penalties.
What to Do If You Receive a Benefit Audit
The EDD will instruct you to complete the audit form and respond within 10 days of receiving the notice. Completing the audit form helps the EDD determine if the correct payments were made to the claimant. If incorrect payments were made, a credit can be given to an employer’s account.
To assure your company is not being harmed or is assessed penalties, make sure to complete the audit form as accurately and completely as possible. It’s best to consult a tax attorney experienced in handling EDD audits. Don’t try to navigate the EDD and these benefit audits by yourself.
Allison Soares is a partner and tax attorney at Vanst Law. It doesn’t matter the issue: audits, collections, appeals, international disclosures, grumpy people— Allison enjoys fixing problems. In addition to her legal work, she has worked in accounting and utilizes that knowledge to her advantage while handling cases involving EDD audits.