ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – EDD SETTLEMENT TERMS – WHAT YOU NEED TO KNOW
By Robert S. Schriebman
It is no secret that I am a big fan of the EDD settlement process and the good work by the EDD’s Settlement Unit. The Settlement Unit is a small part of the overall operation of the EDD. I favor the maxim that a good settlement is better than a good lawsuit.
Years ago, I was having lunch with an old friend who happened to be a top-rated trial lawyer. I asked his advice about the hazards of litigation on an EDD audit assessment that I was prepared to take to trial before an ALJ. I was confident that I would win hands down. My friend agreed. But added his words of wisdom, “Yes, you have much going for you, BUT what if you get a dumb judge?!” After this lunch I decided to try for a settlement through the Settlement Unit. My settlement officer took into account the hazards of litigation on the part of the EDD and offered a more than fair deal. When I also took into consideration that EDD settlements are not reported to the IRS, the settlement became too good to pass up. It was a win-win for everyone.
Remember, if you do not like the settlement offer, you can always have an ALJ hearing on the merits. Going to the Settlement Unit does not prejudiced your right to a judge hearing.
If you elect the settlement route, there are terms and special language that you need to know. This article will discuss the following provisions that are used in virtually all EDD settlements:
- Payment, penalty, and interest;
- Prospective reporting;
- Interim period.
Let’s look at these terms and conditions.
Payment, Penalty, and Interest
When you boil it all down to fundamentals, a settlement means you are going to have to pay money to the EDD. The timing of the payment is very important because if the payment is not made on time, the EDD has the right to withdraw the settlement offer. Payment in full is generally required within thirty days of the CUIAB approving the Settlement Agreement. If payment cannot be made within the thirty days of CUIAB approval, a 15% penalty will be charged pursuant to CUIC § 1135, and interest will begin to accrue on any remaining settlement amount due and owing.
In order for the EDD’s Settlement Unit to enter into a settlement agreement, the employer must agree to prospectively report all worker classifications at issue in your matter. The Settlement Agreement will contain a clause that beginning on a future date certain the employer will begin reporting the types of workers at issue as employees and pay the applicable employment and withholding taxes on their compensation. Due to AB-5, you may have started reporting these workers as employees. In that case, the Settlement Unit will want to know the date that reporting started.
The most confusing concept in the settlement process, may involve the so-called interim period. Beginning with the date of assessment and the filing of a petition, through the settlement process, the EDD did not make an assessment for this “time-gap.” This is the meaning of the interim period. Legally nothing prevents the EDD from supplementing the original assessment to include a new assessment for the time-gap. An EDD settlement does not prevent another audit from being conducted pursuant to the statutory time limitations under CUIC § 1132. As an alternative to a new audit, the Settlement Unit offers the inclusion of the interim period to aid employers to come into voluntary compliance for the workers performing the same type of services at issue in the underlying case. The settlement process does not require the inclusion of the interim period; it is optional.
If the interim period in included, the Settlement Unit may require that you produce proof of payments to workers classified as independent contractors. The settlement officer will then calculate the amount of the time-gap and add it to the original amount of the Settlement Agreement.
NOTE: Including the interim period does not wave any rights of the EDD to audit the employer for the time-gap pursuant to CUIC § 1132. If an audit is conducted, and the new assessment is not paid within thirty days of the CUIAB approving the settlement agreement, a 15% penalty will be charged together with accruing interest.
The interim period assessment is optional. You have a right to waive it. In my experience, after handling many settlements, I have yet to see the EDD conduct a time-gap audit and resulting assessment. Having said this, I remain a strong supporter of the settlement process because I still believe that a good settlement in hand trumps a good lawsuit.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 40 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written 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.
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.
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.
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