California’s Employment Development Department (EDD) issues the overwhelming majority of employer payroll-tax assessments in the state, far exceeding the volume of such cases handled by any other California state agency. A timely, well-argued settlement request can slash a six- or seven-figure bill to a fraction of the original amount, but only if you understand the statute, deadlines, and unwritten practice rules inside the CUIAB Settlement Office.
From Audit to Assessment: When the Clock Starts
The EDD case file does not become “settlement-eligible” until fieldwork ends and a Notice of Assessment (NOA) is mailed. From the mailing date, you have 30 calendar days to file a Petition for Reassessment with the California Unemployment Insurance Appeals Board (CUIAB) under CUIC § 1222. Miss that deadline and the assessment becomes final, fully collectible, and ineligible for settlement.
The Legislature created the Settlement Program in CUIC § 1236. It is administered not by the auditor who assessed you, but by a small Settlement Office inside the CUIAB whose sole mandate is to compromise cases “consistent with a reasonable evaluation of litigation hazards.” A petitioned case is stayed while the Office works; no subpoenas, discovery, or ALJ hearings move forward.
Timeliness and completeness are critical: the Office will not open a file if fewer than 30 days remain before a first-set hearing or if any DE 9/9C quarter is still unfiled. Cases involving fraud findings, criminal tax referrals, or unpaid quarters are automatically rejected.
Written Settlement Request – Your One Shot
The process begins when counsel emails, faxes, or mails a formal offer (EDD Form DE 231SP guidelines). Experienced representatives attach a full hazards-of-litigation brief:
- Worker-classification matrix comparing every Borello and ABC factor to the audit findings, with supporting invoices, insurance certificates, and business-license copies.
- Quarter-by-quarter wage reconciliation tying bank deposits to Forms 941, DE 9/9C, and the general ledger.
- Penalty-abatement argument anchored in CUIC § 1135 (“no intent to evade”).
- Litigation-risk spreadsheet assigning probabilities to each issue and calculating an expected-value settlement number.
Non-Adversarial Conference (Now Mostly Remote)
In practice, Settlement Officers now hold the conference remotely (usually by Microsoft Teams or telephone) and allot roughly an hour, though the exact format and length are set on a case-by-case basis. The discussion covers:
- Competing evidence (e.g., whether installers truly set their own schedules).
- Applicable law – AB 5’s ABC test, statutory exemptions, “casual labor,” corporate-officer remuneration.
- Collection realities: ability to pay, bankruptcy risk, IRS trust-fund or FTB domino effects.
If worker status is in dispute, the Office will require that you begin reporting those workers as employees on a going-forward basis once settlement is approved (EDD DE 231SP, “Coverage” section).
Roughly 60 days after the conference, the officer issues a Proposed Settlement. It must be approved independently by the EDD Director and the CUIAB Executive Director, then signed by an ALJ. Once you sign, your appeal is withdrawn, and payment (or an EDD-approved installment agreement) is generally due within 30 days. Interest continues to run on any unpaid balance until full remittance.
Expected Results When the File Is Built Correctly
- 30 %-70 % reductions in tax and civil penalties on borderline worker-classification cases.
- Full abatement of the 15 % late-deposit penalty (CUIC § 1135) where there is no intent to evade.
- Quarter carve-outs based on statute-of-limitations defenses.
- SDI credit for amounts workers already paid on their own returns—an offset many self-represented employers miss.
Settlement is a true compromise: you won’t erase every dollar and the EDD won’t collect its full assessment, but both sides weigh the risk of losing in court, and that risk is what forces the agency to grant substantial concessions. Remote work, staff turnover, and the training of new officers mean even well-prepared packages can sit 12–18 months before final approval. While the case is pending, your ALJ hearing dates are automatically vacated, and interest accrues only on the still-disputed liability, not on the original (higher) assessment.
Practical Do’s and Don’ts
- Do file the petition within 30 days of the NOA—no petition, no settlement.
- Do submit the settlement request early; if a hearing is less than 30 days away, the Office must reject it.
- Do not expect “inability to pay” alone to drive compromise; financial hardship is considered only as a secondary factor.
- Do not send a one-paragraph offer on a seven-figure case; an incomplete record invites denial or a token counteroffer.
Contact the Tax Law Offices of David W. Klasing if an EDD Settlement Stands Between You and Financial Ruin
When an EDD payroll-tax assessment lands on your desk, the worst step you can take is handing over half–sorted records and hoping for leniency. At the tax law offices of David W. Klasing, our dual-licensed Tax Attorneys & CPAs step in immediately with a disciplined, privilege-protected strategy that flips the leverage in your favor.
First, we forensically reconstruct your payroll, re-classifying mis-tagged 1099s, identifying SDI over-withholding, and isolating wages that exceed the UI base. That granular work often eliminates tens of thousands of “phantom” dollars before the Settlement Officer ever runs a calculator. Next, we translate those numbers into a tight legal brief that speaks the agency’s language: hazards of litigation, statute-of-limitations landmines, and penalty-abatement precedent drawn straight from prior EDD rulings we have won.
Because we are dual-licensed attorneys & CPAs, every draft, spreadsheet, and internal e-mail is wrapped in attorney-client, work-product, and Kovel privilege—materials the EDD, IRS, DIR, CDTFA, or FTB can never pry loose to build a parallel case. We also coordinate a single settlement posture that neutralizes federal trust-fund exposure and state-income-tax nexus problems before they metastasize.
Do not walk into a settlement conference clutching a stapled stack of 1099s and vague excuses. Call us now at (800) 681-1295 or schedule a confidential, reduced-rate initial consultation online HERE. We will file the petition before the 30-day clock expires, build the hazards-of-litigation analysis that compels genuine concessions, and end the payroll-tax nightmare before penalties snowball into personal catastrophe.
