Why was my company chosen for an audit?

Most employers are chosen for an audit based on:

  • Random selections;
  • Consistent error or problems with an employer’s reports;
  • Anonymous tips; or
  • UI/WC Benefit Claim wage protests

What will the Auditor look for?

An Employment Tax Auditor confirms all wages have been reported correctly and all taxable wages have been computed correctly. The most common types of payroll not reported involve payments for casual or contract labor, commissions, and corporate officers.

What if I don’t have any employees?

The Auditor will confirm that during the audit.

I hired Independent Contractors. Will I be charged for payments to these people?

An individual who performs services for pay is an independent contractor for Unemployment Insurance and Workers’ Compensation purposes only if that individual meets all of the following conditions:

  • Is free from control or direction over the details of the performance of the services by contact and by fact;
  • Represents his services to the public as a self-employed individual or an independent contractor; and
  • May Substitute another individual to perform his services.

Independent contractor determinations are made by the division based on the actual working conditions.

You may be liable for taxes, penalty and interest for wages found to be reportable, such as employees treated as independent contractors, casual labor, commissions, and payment or other remuneration to corporate officers.

How many years will the audit cover?

A normal audit covers one calendar year but you may be audited for as many as three years, going back and coming forward to the most recently completed quarter period.

How do I prepare for an audit and what records will I need?

You will receive a letter informing you of a scheduled audit and the timeframe the audit covers. You will need to have available:

  • All payroll records (individual earnings records, payroll sheets, summaries, ledgers, etc.)
  • All 1099’s and 1096’s
  • IRS records (i.e., 941’s, 940, Income Tax Return, W-2’s, W-3’s, etc.)
  • All U.I. and W.C. quarterly reports (Summary Reports and Employee Wage Listings)
  • Cash disbursement records
  • Check records and all check stubs
  • All canceled checks
  • General journals and ledgers
  • Corporate records (i.e., annual reports to Secretary of State, meeting minutes, etc.)
  • Position descriptions if an W.C. special classification are applicable
  • Any contracts for services
  • Invoices, bid sheets, reimbursement records, etc.

If you use accounting software, the Employment Tax Division may review your electronic records instead of paper copies.

How long will the audit take?

Audit time is dependent on the number of employees, the condition of your records and any irregularities discovered. An average audit takes from four to six hours. The Employment Tax Auditor will be able to answer this question for you after an initial review of your records.

Where will the audit take place?

The audit may be conducted remotely via file upload from a secure site, at the employer’s office or at your accountant’s office. The Auditor has the right to require the audit be conducted at the Auditor’s office or some other neutral location. If performing the audit on-site, the Auditor needs adequate workspace with some privacy (to maintain confidentially of your records). A desk or table and chair a short distance away from your customers’ view is adequate. The Audit will work with the employer to find a mutually convenient location.

Should my accountant be present?

That decision is up to you. It would be wise if you feel your accountant has a better grasp of your records than you have.

What if I can’t pay additional taxes?

Any U.I. and/or W.C. tax, penalty and interest are due upon completion of the approved audit. A payment schedule can be arranged if you can’t pay the entire amount immediately. Interest and penalties will continue to accrue until full payment is received.

What if I don’t agree with the audit results?

The audit may be appealed. You will have twenty-eight (28) days for Unemployment Insurance and thirty (30) days for Workers’ Compensation from the date the “Final Determination” letter, confirming the approved audit findings, is mailed to you in which to file an appeal of the audit. The appeal must be submitted in writing. The written appeal should state why you believe the audit is incorrect.

Does an appeal stop interest from accruing?

No. Interest will continue to accrue. If the Auditor’s determination is reversed in your favor, interest related to the audit will be removed from your account.