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The EDD Settlement Unit

By Robert S. Schriebman, SJD

If you are audited by the California Employment Development Department (EDD) the chances are high that you will receive an assessment for unemployment insurance (UI), disability insurance (DI), personal income taxes (PIT), and the education training tax (ETT). You will receive a formal Notice of Assessment.

Assessment Alternatives

When you receive a Notice of Assessment you have several choices before you. You can elect to ignore the Notice and have it go to default. A defaulted Notice must be paid and if not timely paid you will soon be working with an EDD collector. On the other hand, you may elect to file timely a petition before the California Unemployment Insurance Board (CUIB). If you file a timely petition you have another choice - you may elect to have a formal hearing on the merits before an administrative law judge (ALJ) or you may elect to attempt to settle your case without a judge by approaching the EDD Settlement Unit.

The EDD Settlement Unit

The Settlement Unit is a small unit within the EDD whose job it is to try to resolve CUIAB cases without the stress or expense of a full hearing before an ALJ. You can go on the EDD web site and find the contact information for the Settlement Unit. These people work very hard to try to resolve cases based upon their view of the hazards of litigation. If the Settlement Unit concludes that it has no litigation hazards, it has the right to deny any type of settlement, but this is a rare event. Most cases submitted to the Settlement Unit are resolved for substantially less than the original deficiency issued in the Notice of Assessment.

Settling your EDD matter is not a "slam dunk." There are things that you need to know before you submit your case to the Settlement Unit.

The Assessment Gap Must Be Met

There is always a period of time between the date the Notice of Assessment was issued and the date you finally reach a settlement with the Settlement Unit. It is not uncommon for this period to be substantially longer than one year. During this "gap period" additional payroll taxes accrue. These are post-assessment taxes. As part of the settlement process the EDD Settlement Unit will compute this "gap" and add it to the settlement amount determined. This additional assessment takes a lot of people by surprise.

All Workers Must Be Treated As Employees

Most of the matters considered by the EDD Settlement Unit involve issues of worker's status, i.e. employee versus independent contractor. Most likely you have been assessed in an audit because you treated workers as independent contractors. As part of the EDD settlement process you must agree that as of a future date certain, you will treat all workers as employees, take out proper withholdings from their paychecks, and timely remit those withholdings to the EDD. If you are not prepared to treat your workers as employees, or you believe that you have a strong position that they are truly independent contractors, you should bypass the EDD Settlement Unit and arrange for an ALJ hearing on the merits.

The Settlement Unit Makes a "Take It or Leave It" Offer

When the EDD Settlement Unit reaches a decision on a settlement amount your assigned settlement officer will present you with a settlement proposal. This proposal is not open to negotiation. It is not like the back and forth offer-counteroffer so common to the purchase of a home. The EDD does not entertain counteroffers. The EDD offer is "take it or leave it."

The Settlement Amount Must Be Paid Promptly

Once the EDD settlement proposal has been accepted, the EDD expects prompt payment. This usually means payment in full within 30 days after the written settlement has been signed and approved. Here is the only area open to negotiation. The EDD will allow you to pay the settlement amount in equal monthly payments, plus accruing interest, over a 24-month period - maximum. The EDD does not go beyond 24 months.

© Copyright 2011. No part of this article may be taken and used in any way whatsoever without the express written consent of Robert S. Schriebman

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, "IRS Tax Collection Procedures - A Manual for Practitioners" published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See "California Tax Collection Practice and Procedures" and "California Taxation Practice and Procedure", both published by Commerce Clearing House.