What Is the EDD's Lead System? So the EDD in California operates under a lead system and what I mean by that is the EDD has a computer system that generates leads for its district offices in order to follow up on from an audit perspective so there's lots of things that can trigger a lead the way I equated which the reference is a little lost if you haven't seen the movie is if you look at Minority Report the Minority Report you have these three Precog thingies that would basically be able to predict crime and so every time they predict a crime you'd have a little ball that would roll out of the machine with somebody a name on it so the EDD system works a lot like that in that there's lots of things that can trigger a leak so for example unemployment claims trigger EDD leads all the time of subject the hiring entities to payroll tax consequences or at least payroll tax bonds you can have a lead issue for issuing too many 1099 s over W choose and what too many is is anybody's guess you can have a lead issue for being in a certain type of industry you can have a lead issue for somebody calling and saying that you're employing employees as independent contractors there's a variety of things that make up the leading these lead system but here's the issue from a statutory perspective the EDD is required to follow up on any leads it gets so even if the lead is bogus we'll follow up on somebody should reform usually they fall upon these by sending a pre audit questionnaire and making the decision whether or not to pause so you need to be very careful if you receive a pre audit question because what it likely means is that lead was generated in the EDD assistant and it's they're following up for you in order to assess your viability for a payroll tax on.