Does AB5 apply to my business?

AB5 applies to most California businesses that use independent contractors. However, numerous professional exemptions exist for occupations like doctors, lawyers, accountants, engineers, and many others. We analyze your specific situation to determine which test applies and which exemptions are available.

What happens if my workers are reclassified?

Reclassification results in back payroll taxes, penalties, and interest for up to three years. It can also trigger FTB withholding assessments, workers' compensation adjustments, and potential exposure from other workers who may file claims based on the same precedent.

Can I still use independent contractors in California?

Yes, but you must ensure they meet the requirements of the applicable test — either the ABC test or the Borello test, depending on the exemption. Proper contracts, documentation, and business practices are essential.

How long does an EDD audit take?

EDD audits typically take 3-9 months, though complex multi-worker reclassification cases can take longer. Early engagement of legal counsel can help streamline the process and protect your position from the start.

What is the penalty for misclassifying workers?

Penalties include 10% of the assessment for late payment, up to 50% for fraud, and potential criminal penalties for willful misclassification under Labor Code section 226.8. Personal liability for responsible individuals adds additional exposure.

Should I reclassify my workers before an audit?

This is a strategic decision that depends on your specific circumstances. Voluntary reclassification can reduce penalties but may not be necessary if your workers legitimately qualify as independent contractors. We analyze your situation before recommending any changes.

Tax Defense

California EDD Defense
Worker Classification Fights.

EDD payroll tax audits and worker reclassification disputes can generate massive assessments. We defend California businesses against the EDD with aggressive, results-driven representation.

Sam Brotman, J.D., LL.M.|Last updated April 2026

Key Takeaway

California's EDD presumes virtually every worker is an employee. If you use independent contractors, you're a target for reclassification audits that can produce six- and seven-figure assessments plus penalties.

The EDD Wants to Reclassify Your Workers — and Send You the Bill.

California's Employment Development Department aggressively targets businesses that use independent contractors. Under AB5 and the ABC test, California presumes every worker is an employee unless the business can prove otherwise.

An EDD reclassification audit doesn't just hit you with back payroll taxes. It triggers penalties, interest, and potential assessments from the FTB and CDTFA as well. A single reclassification can cascade into hundreds of thousands of dollars in liability.

We defend businesses against EDD audits by building comprehensive cases that prove the independence of your contractors under both the ABC test and the Borello test. We know which exemptions apply to your industry and how to document them.

The stakes are too high to handle an EDD audit without experienced legal representation. One wrong answer can open the door to a company-wide reclassification that threatens your entire business model.

From Our Practice

We've defended dozens of businesses against EDD reclassification audits — from tech companies with independent contractors to construction firms with subcontractors. The EDD uses aggressive presumptions that treat virtually every worker as an employee, and the back-tax assessments can reach seven figures.

What We Handle

EDD Payroll Tax Services

Worker Classification Defense

We defend businesses against EDD reclassification audits under AB5's ABC test. We prove contractor independence with evidence, legal authority, and industry-specific exemptions.

Payroll Tax Audits

Full representation during EDD audits of payroll tax returns, wage reporting, and withholding compliance. We manage every aspect of the examination process.

EDD Appeals

When the EDD issues an assessment, we file petitions and represent your business at CUIAB hearings and before the Office of Tax Appeals to reverse findings.

Personal Liability Defense

EDD can hold officers and managing members personally liable for unpaid payroll taxes. We defend individuals against personal liability assessments.

Penalty Abatement

EDD penalties for misclassification and non-compliance are severe. We pursue abatement based on reasonable cause, industry practice, and good-faith compliance efforts.

Compliance Restructuring

After resolving your EDD dispute, we help restructure your worker relationships to ensure ongoing compliance while preserving business flexibility.

Understanding the Process

EDD Payroll Tax: What Employers Need to Know

What is the ABC test under AB5?

AB5 codified the ABC test for determining worker status in California. Under this test, a worker is presumed to be an employee unless the hiring entity proves all three factors: (A) the worker is free from control and direction, (B) the work is outside the usual course of the hiring entity's business, and (C) the worker has an independently established trade or business.

The B prong is the most challenging for most businesses. However, numerous exemptions exist for specific professions and industries. We identify and document every applicable exemption.

What triggers an EDD audit?

Common triggers include: a worker filing for unemployment benefits and listing your business as their employer, a worker filing a wage claim, an anonymous tip, data matching between state agencies, or a referral from the IRS after a federal employment tax audit.

Industry-wide sweeps are also common, particularly in construction, trucking, healthcare, and technology staffing.

What are the financial consequences of reclassification?

Reclassification triggers back payroll taxes (UI, SDI, PIT withholding), penalties of 10-50% of the assessment, and interest running from the original due date. The EDD can assess up to three years back from the date of the audit.

Additionally, reclassification can trigger FTB income tax withholding assessments and workers' compensation insurance premium adjustments, multiplying the total exposure.

Can I be personally liable for EDD assessments?

Yes. Under California law, responsible persons — officers, directors, managers, and anyone with authority over payroll — can be held personally liable for unpaid employment taxes. This personal liability survives bankruptcy in many cases.

We defend individuals against personal liability assessments and work to limit exposure to the business entity level.

Talk to a Tax Attorney

Not Sure Where You Stand?

Schedule a free 15-minute call. We'll assess your situation, outline your options, and tell you exactly what to expect — no obligation.

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or call (619) 378-3138

Why Brotman Law

EDD Defense That Protects Your Business Model

AB5 Expertise

We know AB5 inside and out — the ABC test, the Borello test, every exemption, and every exception. This is core to our practice.

Industry Knowledge

We've defended businesses in construction, tech, healthcare, transportation, entertainment, and professional services against EDD reclassification.

Personal Liability Defense

We protect business owners from personal liability assessments that can follow them for life.

Multi-Agency Coordination

EDD audits often trigger FTB and CDTFA issues. We handle all three agencies simultaneously to contain your total exposure.

Compliance Solutions

We don't just defend — we help restructure your operations to maintain compliance while preserving your business model.

Aggressive Advocacy

The EDD expects businesses to fold under pressure. We don't. We challenge every assertion, every assumption, and every calculation.

Learn More

Payroll Tax Guides & Resources

Free Guide

California EDD Defense
Worker Classification Fights.

The EDD Wants to Reclassify Your Workers — and Send You the Bill.