©2024 Seyfarth Shaw LLP www.seyfarth.com 2024 Cal-Peculiarities | 25 SDI is a partial wage-replacement insurance plan for California workers, funded through mandatory employee payroll deductions. SDI provides short-term benefits to eligible workers who suffer a loss of wages when they cannot work due to a non-work-related illness or injury, or a medically disabling condition resulting from pregnancy or childbirth. The EDD also administers the employee-funded PFL program, which provides partial wage-replacement for employees who are eligible for an otherwise unpaid leave to care for an ill or injured family member, bond with a new child, or participate in certain events because of a family member’s military deployment.57 1.6.2 Payroll tax audits regarding independent contractor classifications As California’s largest tax collection agency, the EDD conducts payroll tax audits of California businesses, often after workers have filed claims for unemployment insurance benefits against businesses that have not paid payroll taxes with respect to those workers. The EDD frequently challenges the classification of workers as independent contractors instead of employees. During a payroll tax audit, the EDD obtains accounting records and makes onsite visits. The review period is generally up to three years. The audit aims to see if every worker paid for services was properly classified as an employee or independent contractor and if wages and taxes were properly reported. Audits, if they go badly for the employer, can result in an assessment of additional taxes and penalties due. The employer may petition for a reassessment or for a hearing before an administrative law judge. The significance of correct classification looms especially large in light of the hefty potential civil penalties for employers and their outside, non-attorney advisors who engage in “willful misclassification” of workers as independent contractors.58 1.6.3 EDD regulations and checklists with respect to employment status The EDD has comprehensive regulations applying the common law to questions of whether workers are employees or independent contractors. The regulations state that the most important factor is the right of the principal to control the manner and means of accomplishing the desired results, but they also list ten other factors to consider.59 The regulations explain how to apply these rules in various industries, including real estate, home health care, computer services, newspaper distribution, process servers, banking, and cosmetology.60 A comprehensive EDD checklist provides guidance in determining whether the service provider is an employee or an independent contractor. But in 2019 the Legislature re-wrote the rules of the game, creating a presumption of employment status for any worker providing service to a hiring entity unless the entity can satisfy the ABC test as to that provider.61 (See § 19.7.) 1.7 Unemployment Insurance Appeals Board (UIAB) The UIAB hears claims for unemployment and disability benefits. These cases are appeals from administrative determinations made by the EDD. The UIAB also hears petitions from taxpayers concerning assessments made by the EDD’s Tax Branch. The initial hearings and decisions are heard in eleven Offices of Appeals throughout the state. These offices conduct the first level of appeal. An administrative law judge presides, and takes taperecorded testimony under oath (see § 15.3). A losing party at the first level may appeal to the second level.62 1.8 Division of Workers’ Compensation (DWC) Workers’ compensation cases brought by injured workers (“applicants”) are heard by workers’ compensation referees employed by the DWC. Any settlement of a workers’ compensation case must be in the form of a compromise and release or stipulations with request for award. A compromise and release extinguishes liability for future medical care in return for a lump sum payment. A stipulation with request for award leaves open the
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