What do employers need to know about independent contractors and California EDD payroll tax audits?
In California, employers are responsible for payroll taxes and contributions, and filing quarterly and yearly reports with the California Employment Development Department (or the “EDD”) on behalf of its employees . There are four kinds of payroll taxes administered by the EDD: Unemployment Insurance, Employment Training Taxes, State Disability Insurance, and Personal Income Taxes. If there is a legally valid relationship, independent contractors operate as separately established businesses and payments to them are treated the same as payments to other companies. To qualify as an independent contractor, the contractor’s business and the parties’ services arrangement must either satisfy all three components of the ABC Test or fall within one of the exceptions to the ABC Test and meet the requirements of California’s common law test, the Borello standard. If the ABC Test or one of its exceptions are not satisfied, the contractor will be deemed an employee, and the contracting company wi...