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Navigating the EDD Appeal Process as an Employer 

Navigating the EDD Appeal Process as an Employer

Employment tax compliance is a vital responsibility for employers, particularly with proper classification of workers. If you have ever hired independent contractors for your business operations, you could potentially find yourself subject to an Employment Development Department (EDD) audit. EDD is tasked with enforcing California’s payroll and worker classification laws, most notably AB-5. If you are facing an upcoming or current audit, you can check out our post on the audit process for a more thorough description.

Briefly, EDD audits most commonly occur if there is a suspected misclassification of workers as independent contractors. In such cases, the auditor reviews the employer’s payroll to ensure all taxes were properly held, and most importantly, reviews all independent contractors to determine if they are properly classified. In California, independent contractor status is subject to very strict regulations, so if you’ve experienced a worker classification audit, it’s likely you’ve had workers reclassified. If the EDD finds any changes to be made, they issue a Notice of Assessment (NOA) outlining the tax liabilities, interest, and any penalties.

If you have recently completed an EDD audit and are unhappy with the results – whether it be the assessment amount, or the reclassification of independent contractors to employees – it is not the end of the road. This article will walk you through the process of appealing your EDD audit results and provide insights on how to handle the appeal effectively.

Understanding the EDD Audit Appeals Process

  1. File the Appeal Petition: If you are unhappy with your audit results or simply need more time to pay, the first step is to submit an appeal petition to the local California Unemployment Insurance Appeals Board (CUIAB) within 30 days of the mail date on the NOA. This can be done through a letter or designated appeal form. The appeal form/letter should state the company’s information, the reason(s) for the appeal, and request for a hearing with an Administrative Law Judge (ALJ). Make sure that the submission also includes the necessary information, such as your company’s name, address, Employer Identification Number (EIN), any third-party representatives, and claimant information.

  2. Address the Assessed Amount: Within 30 days from the NOA’s mail date, you must either pay the balance or appeal the assessment. Failing to pay or appeal within this timeframe will result in a penalty of 15% of the unpaid amount. Timely filing an appeal puts the payment due date on hold until the appeal is resolved. However, the balance will accrue interest as long as it is unpaid – even while the appeal is still pending. Therefore, even if you disagree with the assessed amount, it may be advisable to timely pay the assessed amount in full to avoid additional interest. Paying the NOA balance is not an acceptance of the liability and will not affect your right to a hearing. If your appeal is successful, the amount you paid beyond the final assessment (if any) will be refunded to you.

  3. Hire an Experienced Attorney: If you have not already hired an attorney, or if you did not have an attorney represent you in the audit, it is highly advisable that you get one immediately. An EDD appeal is a formal legal proceed litigated before a judge. Therefore, the process can be stressful and complex. At Dallo Law Group, we specialize in EDD matters, offering unparalleled support to enhance your chances of a successful appeal and put your mind at ease.

  4. Consider Settling: The EDD has a settlement program which allows employers with pending appeals the opportunity to negotiate a settlement to avoid the cost and time of litigation. The settlement would be a compromise with the EDD on the audit assessment. For employers with unfavorable facts heading into the appeal, settlement can be the best hope at lowering the assessment. However, in the case of an audit which resulted in independent contractors being reclassified as employees, EDD requires that the reclassification be agreed to as a pre-condition of settlement. Therefore, if your main goal in appealing is to preserve independent contractor status, settlement is likely not a viable option.

  5. Prepare for the Hearing: After you submit the appeal, the CUIAB will send a Notice of Hearing (NOH), usually withing six months to a year. The NOH will schedule the hearing and designate the location. The hearing will usually be set 20 days after the mail date of the NOH, so preparation should begin well before receipt of the NOH. As such, you should collaborate with your attorney as soon as you file your appeal to organize any evidence, testimonies, and other relevant materials. Also, if needed, you can receive a 10-day notice on all issues that will be addressed in the hearing, helping your attorney narrow his or her focus in the final days of preparation.

  6. Hearing, Decision, and Second-Level Appeal: A CUIAB hearing is similar to any traditional court proceeding. The administrative law judge presides over the process, and each side is given ample time to present their arguments and evidence, up to and including calling witnesses to the stand. After the hearing concludes, the ALJ will issue a decision. This decision will either uphold, reverse, modify, or set aside the EDD’s determination in the NOA. You may file a second-level appeal to the CUIAB within 30 days of the ALJ’s decision. The second appeal is submitted the same way as the first. However, unlike the first appeal, the second appeal does not receive a hearing. Rather, it is simply a review of the ALJ’s decision, which can be affirmed, reversed, or modified. This decision is only appealable by filing a petition in California Superior Court.

Other important strategies:

  • Have Clear Documents – Make sure that all appeal petitions, evidence, and any other documents are clear and concise to avoid any confusion during the appeals process.

  • Be Prepared – Ensure that you use your time before the hearing wisely, thorough preparation could be the difference in ALJ’s decision.

  • Hire the Right Attorney – An attorney that is both an expert in EDD audits and appeals is essential to a successful appeal.

Conclusion

The EDD appeals process can be complex and taxing, but with diligent preparation and expert guidance, your chances for a successful outcome improve significantly. If you are looking to appeal a decision from an EDD audit, call us at Dallo Law Group. We have handled hundreds of EDD audits and appeals and will represent you with the utmost professionalism at every step of the way. Call today to schedule a free 30-minute consultation.

Written By: Alex Whaples