Misclassify Misstep

11.23.16srobinson

audit

By: Joy Huffman

The IRS is on a roll and has promised to conduct over 6,000 random audits over the next several years to determine if businesses have misclassified certain employees as independent contractors. The audits are intended to help close the US. Government Accountability Office’s estimated $15 billion tax gap due to misclassification of employees. In California, the Employment Development Department (EDD) investigates misclassification of employees and, if misclassification is found, can issue an assessment against the offending business to recover tax-related withholding the employer should have paid but didn’t pay (including unemployment and state disability insurance payments, employment training taxes, and personal income tax) AND penalties.  Now, a California Court of Appeal has emphatically warned employers about the administrative steps they must follow if they intend to challenge the EDD assessment in court and seek a refund of the tax related payments.  The steps a business must take to seek a refund after an EDD assessment are well-defined by statute. Miss a step, or get them out of order, and your business may be stuck without a remedy after paying the assessed taxes and potential penalties.   This recent decision is a stark reminder, coming at a time when more and more businesses may face audits on their classification of workers. Contact SDHRC if you receive audit paperwork in the mail and we will walk you through the process!