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 is if you look at the movie Minority Report, you have these three Precog people 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's name on it. So the EDD system works a lot like that in that there's lots of things that can trigger a leak. For example unemployment claims trigger EDD leads all the time and subject the hiring entities to payroll tax consequences or at least payroll tax bonds. You can have a lead issue for issuing too many 1099s over W-2s and what is too many 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 this 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 they'll follow up on somebody. Usually they follow up on 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 questionnaire because what it likely means is that a lead was generated in the EDD assistant and they're following up for you in order to assess your viability for a payroll tax audit.


Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law