Employment Development Department (EDD)

What Is the Employment Development Department?

The Employment Development Department (EDD) is a California state agency that administers several critical programs affecting employers and workers. Unlike the DLSE, which focuses on wage and hour enforcement, the EDD primarily handles employment-related insurance programs and payroll tax administration. The EDD collects payroll taxes, processes unemployment and disability claims, and conducts employment tax audits.

For California employers, the EDD is a constant presence through required payroll tax withholding and reporting, as well as a potential source of significant liability through employment tax audits and worker misclassification investigations.

Core EDD Programs

Programs Overview

Program	Description	Employer Responsibility
Unemployment Insurance (UI)	Benefits for workers who lose jobs	Pay UI taxes, respond to claims
State Disability Insurance (SDI)	Benefits for workers unable to work due to illness/injury	Withhold from employee wages
Paid Family Leave (PFL)	Benefits for workers caring for family	Part of SDI program
Employment Training Tax (ETT)	Fund job training programs	Pay ETT taxes
Personal Income Tax (PIT)	State income tax withholding	Withhold and remit to EDD

Unemployment Insurance (UI)

The UI program provides temporary income to workers who lose their jobs through no fault of their own:

Employer Obligations:

• Register with EDD within 15 days of paying wages
• Pay quarterly UI taxes based on taxable wages
• Respond to UI claim notices promptly
• Maintain accurate records of employment

UI Tax Rates:

Factor	Description	Impact
Base rate	Starting rate for new employers	3.4% for most new employers
Experience rating	Adjusted based on claims history	Range from 1.5% to 6.2%
Taxable wage base	Wages subject to UI tax	First $7,000 per employee per year
Reserve account	Credits from taxes minus charges	Determines experience rating

Managing UI Costs:

• Document all terminations thoroughly
• Respond to claim notices within 10 days
• Provide accurate separation information
• Contest improper claims appropriately
• Maintain good documentation of misconduct

State Disability Insurance (SDI)

SDI provides short-term benefits to workers unable to work due to non-work-related illness, injury, or pregnancy:

Program Details:

• Funded entirely by employee contributions
• Employer withholds from employee wages
• Current rate: 1.1% of wages (subject to change)
• No wage cap on SDI withholding
• Employer remits withheld amounts to EDD

Employer Responsibilities:

• Withhold correct SDI amount
• Remit withholdings quarterly
• Provide claim forms to requesting employees
• Do not interfere with valid claims

Paid Family Leave (PFL)

PFL provides benefits to workers who need time off to:

• Bond with a new child (birth, adoption, foster)
• Care for a seriously ill family member
• Participate in qualifying military events

Important Notes:

• PFL is part of SDI program (same funding)
• Provides wage replacement, not job protection
• Job protection may come from CFRA or FMLA
• Employer must provide claim information

EDD Payroll Tax Requirements

Registration and Reporting

New Employer Registration:

• Register within 15 days of paying $100+ in wages
• Obtain EDD employer account number
• Set up quarterly reporting and payment

Quarterly Reporting:

Form	Purpose	Due Date
DE 9	Quarterly contribution return	Last day of month following quarter
DE 9C	Quarterly employee wage detail	Same as DE 9
DE 88	Payment coupon	Same as DE 9

Annual Reporting:

Form	Purpose	Due Date
DE 7	Annual reconciliation	January 31
W-2	Employee wage statements	January 31

Payment Requirements

Tax Payment Schedule:

Deposit Frequency	Threshold	Due Date
Quarterly	Less than $350/month PIT withheld	With quarterly return
Monthly	$350-$500/month PIT withheld	15th of following month
Semi-weekly	Over $500/month PIT withheld	Depends on payday

Payment Methods:

• Electronic funds transfer (EFT) - required for most employers
• Web pay through EDD website
• Check payment (limited availability)

Record-Keeping Requirements

Employers must maintain employment records for at least four years:

Record Type	Retention Period	Contents Required
Payroll records	4 years	Wages, deductions, hours
Tax returns	4 years	Filed returns and schedules
Employee information	4 years	Name, SSN, address
Time records	4 years	Hours worked
Canceled checks	4 years	Wage payments

EDD Audits and Investigations

Types of EDD Audits

Audit Type	Trigger	Focus
Routine audit	Random selection or schedule	General compliance review
Targeted audit	Complaints or referrals	Specific issues or industries
Employment tax audit	Worker classification concerns	Independent contractor status
Payroll tax audit	Discrepancies in reporting	Tax calculation and payment

Employment Tax Audits (Worker Classification)

The most significant EDD audit risk for many employers involves worker classification. The EDD investigates whether workers classified as independent contractors should be employees:

Audit Triggers:

• Worker files unemployment claim
• Complaints from workers or competitors
• Information sharing from other agencies
• Industry-targeted enforcement
• Random selection

What EDD Examines:

• Contracts with workers
• Payment records
• Control over work performed
• Business relationship nature
• Worker's independent business

ABC Test Application: Under California's ABC test (AB 5), workers are presumed employees unless the hiring entity proves:

Prong	Requirement	What It Means
A	Free from control and direction	Cannot direct how work is done
B	Outside usual course of business	Work not part of regular business
C	Engaged in independent business	Worker has own trade or business

Audit Process

Notification:

• EDD sends audit notice
• Identifies scope and records needed
• Schedules appointment

Document Request: Typical documents requested include:

• Payroll records and tax returns
• Independent contractor agreements
• 1099s and W-2s issued
• Business licenses and permits
• Invoices and payment records
• Job descriptions and work samples

Examination:

• Auditor reviews documents
• May interview workers
• Assesses classification decisions
• Reviews tax calculations

Findings:

• Preliminary findings shared
• Employer may respond
• Final assessment issued
• Appeal rights provided

Audit Consequences

If Workers Are Reclassified:

Consequence	Calculation	Impact
Back taxes	UI, ETT, SDI for misclassified workers	3+ years of employment taxes
Penalties	15-50% of unpaid taxes	Substantial additional liability
Interest	Accrues from original due date	Compounds over time
Personal liability	Officers/owners may be liable	Individual exposure

Example Liability Calculation: Consider an employer with 10 misclassified workers earning $50,000 each over 3 years:

Component	Calculation	Amount
UI tax (avg 4%)	$7,000 × 10 × 3 × 4%	$8,400
ETT (0.1%)	$7,000 × 10 × 3 × 0.1%	$210
SDI (not withheld)	$500,000 × 3 × 1.1%	$16,500
PIT (not withheld)	Varies by income	$45,000+
Penalties (25%)	On above amounts	$17,500+
Interest	Varies	$5,000+
Total		$90,000+

Responding to EDD Actions

Responding to UI Claims

When a former employee files for unemployment:

Timeline:

• EDD mails notice to employer
• 10 days to respond
• Include all relevant information
• Late response may result in charges

Effective Responses:

Situation	Response Strategy
Voluntary quit	Document resignation, no work shortage
Misconduct discharge	Document policy violations, warnings
Layoff	Acknowledge separation, note business reasons
Disputed facts	Provide documentation supporting employer's position

Appealing Determinations: If EDD rules against employer:

1. File appeal within 20 days
2. Hearing before Administrative Law Judge
3. Present evidence and witnesses
4. Higher appeals available

Responding to Audits

Preparation:

1. Gather all requested documents
2. Review for completeness and accuracy
3. Identify potential issues proactively
4. Consider engaging tax professional
5. Prepare explanations for unusual items

During the Audit:

• Cooperate professionally
• Answer questions truthfully
• Don't volunteer unnecessary information
• Take notes on all discussions
• Request clarification when needed

After the Audit:

• Review preliminary findings carefully
• Respond to errors in writing
• Consider negotiation if appropriate
• Decide whether to appeal

Appeal Rights

Employers can appeal EDD determinations:

Decision Type	Appeal Deadline	Appeal Forum
UI claim decision	20 days	Office of Appeals
Tax assessment	30 days	Office of Appeals
Penalty assessment	30 days	Office of Appeals
Appeal denial	30 days	CUIAB (board)

EDD Compliance Best Practices

Registration and Setup

• Register immediately when hiring first employee
• Set up e-Services account for online filing
• Establish proper withholding calculations
• Create payroll calendar with all deadlines

Ongoing Compliance

Payroll Processing:

• Calculate taxes correctly each pay period
• Withhold proper amounts from employees
• Deposit taxes timely based on schedule
• File quarterly returns on time

Record Maintenance:

• Keep organized payroll records
• Maintain all source documents
• Store records securely for required period
• Back up electronic records regularly

Worker Classification:

• Apply ABC test properly
• Document independent contractor relationships
• Review classifications regularly
• Seek professional guidance when uncertain

Year-End Procedures

Task	Deadline	Details
Reconcile annual wages	December 31	Verify totals match records
Prepare W-2s	January 31	Employee wage statements
File DE 7	January 31	Annual reconciliation
Provide W-2s to employees	January 31	Paper or electronic
File W-2s with SSA	January 31	Required federal filing

EDD Coordination with Other Agencies

The EDD shares information and coordinates with other enforcement agencies:

Agency	Information Shared	Impact
DLSE	Worker classification findings	Wage and hour investigations
IRS	Employment tax information	Federal tax audits
Franchise Tax Board	Income and withholding data	State tax enforcement
Contractors State License Board	Classification violations	License actions
Department of Industrial Relations	Various employment data	Cross-agency enforcement

Important: A finding of misclassification by EDD often triggers inquiries from other agencies, multiplying potential liability.

EDD Resources for Employers

Online Resources

Resource	Location	Purpose
e-Services	edd.ca.gov	Online filing and payments
Tax Rate Notice	Mailed annually	Your UI tax rate
Employer Handbook	edd.ca.gov	Comprehensive guidance
Seminars	edd.ca.gov	Educational programs

Direct Assistance

• Employer hotline: General questions
• Tax office: Tax-specific inquiries
• Local EDD offices: In-person assistance
• Written inquiries: Complex questions

Recent EDD Developments

Pandemic Impact

COVID-19 significantly affected EDD operations:

• Massive increase in UI claims
• Extended benefits programs
• Processing backlogs
• Fraud concerns and enhanced scrutiny

Enhanced Enforcement

California has increased EDD resources for:

• Worker misclassification investigations
• Tax compliance audits
• Cross-agency coordination
• Industry-targeted enforcement

Technology Updates

EDD continues modernizing systems:

• Improved online services
• Better data analytics
• Enhanced fraud detection
• Streamlined reporting

Understanding EDD requirements and maintaining compliance helps California employers avoid costly audits, penalties, and the cascading consequences that can follow worker misclassification findings. Proactive compliance with payroll tax obligations and proper worker classification remains essential for California businesses.