This topic contains the following information:

• Employer SDI Obligations
• Notifying EDD of Business Change

Employer SDI Obligations

Though the state administers SDI benefit payments, you do bear several obligations:

• Informing employees of their right to benefits
• Making proper payroll deductions
• Sending the money deducted to the state
• Filing quarterly and year-end reports to the state

Required SDI Forms, Pamphlets and Posters

If you are covered by the state disability and UI programs, you must post and maintain the EDD’s Form DE 1857A - Notice to Employees - Unemployment Insurance, State Disability Insurance and Paid Family Leave in places readily accessible to employees to inform employees of their rights to UI and disability insurance.3 If you are covered only by disability insurance, you must post the Form DE 1858 - Notice to Employees Disability Insurance, Paid Family Leave.

You also must provide the EDD pamphlet DE 2515 - State Disability Insurance Provisions, which summarizes the state disability program to:

• Each new employee at the time of hire
• Each employee who becomes disabled due to pregnancy or who becomes ill, injured or hospitalized due to causes unrelated to work4

Employees who are placed on a leave of absence must be given a DE 2320 - For Your Benefit, California’s Programs for the Unemployed pamphlet.5

Failure to comply with these requirements constitutes a misdemeanor.6

You can download disability insurance forms and publications from the EDD’s website.

When an SDI claim is filed, you will receive a Form DE 2503 - Notice to Employer of Disability Claim Filed. Complete and return the form within two working days when you have information affecting the claimant’s eligibility.

• CalChamber’s California and Federal Labor Law Poster contains the 18 required state and federal postings, including the required EDD disability insurance poster all California employers must post. CalChamber also packages the PFL and SDI pamphlets in packets of 20 each. To order, call (800) 331-8877, or visit our online store.

Withholding Employee’s SDI Contributions

The EDD’s director determines the rate each employee must contribute to the Disability Insurance Fund. The contribution rate for the following year is determined each year on or about November 30. Depending on the state of the SDI fund, the contribution rate may change from year to year. When the rate and limits are announced, the information will be available on the EDD’s 24-hour automated call system at (916) 653-7795 and on the EDD’s website.

Sending Employee SDI Contributions to the EDD

The EDD requires you to withhold from employee wage payments the total amount of SDI taxes owed by employees on their gross wages. You must show deductions on payroll records, provide each employee with a statement of their deductions and remit the withheld sums to the EDD for deposit in the Disability Fund. Report contributions to the EDD in the same manner as unemployment taxes.

Exceptions to SDI Payments

You can avoid certain taxes and penalties for failing to make a timely return or payment if you reasonably relied on written advice from the EDD. You need not pay taxes, additions to tax and penalties when:

• You requested, in writing, advice from the EDD about whether a particular activity or transaction is covered by EDD’s tax laws;
• You provided the specific facts and circumstances of the employment relationship, activity or transaction;
• The EDD responded in writing;
• You did not remit taxes due based on the EDD’s written advice;
• The EDD had not modified or rescinded the advice to you; and
• There was no subsequent change in law, regulation or material fact relating to that tax.7

Inaccurate Employer SDI Payments

The EDD’s director can charge you for amounts you are determined to owe in specified instances. If you fail to make a return and pay contributions, the EDD’s director can use any information available to them to compute the amount owed.8 The assessment procedure also imposes a 10 percent penalty on any unpaid amounts. If the delinquency is motivated by an intent to defraud the EDD or evade the Unemployment Insurance Code, your penalty rises to 50 percent of the amount of contributions.9

Inaccurate Employer SDI Reporting

If your return provides inadequate or defective data, the EDD can use any information in its possession to compute the actual amount owed.10 If a deficiency exists, the EDD’s director may charge you for that amount and may impose a 10 percent penalty if it appears that negligence or intentional disregard of regulations produced the deficiency.11 You must also pay daily interest on any unpaid contributions at the rate computed as previously indicated. This accrues from the date of delinquency.12 If the EDD’s director determines that delay may prevent collection of unpaid contributions, they may use a jeopardy assessment similar to that used in UI proceedings.

Special SDI Cases

In cases of seasonal or short-term businesses or those threatened with imminent insolvency, the EDD’s director may act to ensure payment of disability contributions. This provides for shorter reporting and collection periods.13 You must pay all contributions in these cases within 10 days after the reporting period set by the EDD’s director. If unpaid at that time, the contributions become delinquent.

Filing SDI Appeals

1. When the EDD’s director makes an assessment against you, you have 30 days from the date of receiving the notice of assessment to petition for review or reassessment with an administrative law judge. If a petition for review is not filed within the 30-day period, the assessed amount is final and due at the end of the 30 days.14
2. An administrative law judge (ALJ) from the California Unemployment Insurance Appeals Board initially hears the petition for reassessment.
3. A hearing is held if you request it, unless you have already had a hearing on the same issue.
4. The ALJ must give 20 days’ notice of the time and place of hearing unless the parties consent to a shortened period.15
5. After the ALJ renders their decision, you and the EDD’s director are immediately informed of it.
6. Either party has 30 days to appeal or the ruling becomes final.
7. The Unemployment Insurance Appeals Board may extend the appeal period upon a showing of good cause.16
8. When receiving an appeal, the Unemployment Insurance Appeals Board can affirm or modify the ALJ’s decision.
9. If the Board orders a modification, the EDD must make appropriate adjustments.17
10. The decision becomes final 30 days after the EDD’s director notifies you of the amount owed.
11. If the board affirms the ALJ’s decision, the decision becomes final 30 days after you are notified of the board’s decision.

You can use a legal mechanism called a “writ of mandamus” to ask a judicial court to overturn the disability benefit decisions of the Unemployment Insurance Appeals Board (which also applies in UI cases). However, you cannot use the same legal mechanism to ask a court to review a tax assessment case.18 These claims must be filed in a court of competent jurisdiction in Sacramento County.

Notifying EDD of Business Change

You must notify the EDD if you cease doing business in California, sell or merge your business, transfer majority ownership or otherwise significantly change the form of your business. Under some of these conditions, you must file a final tax return and pay all contributions due.

For more information, download the California Employer’s Guide, commonly known as the Form DE 44 - California Employer’s Guide, from the EDD’s website.

Quitting Business or Changing Ownership

If you go out of business, you must make a report to the EDD’s director. You must also make a similar report if you transfer 50 percent or more ownership control of your business to a new owner:19

• If you close your business, you must file a final Form DE 88 - Payroll Tax Deposit with payment, and Form DE 9 - Quarterly Contribution Return and Report of Wages and Form DE 9C - Quarterly Contribution Return and Report of Wages (Continuation) within 10 days of quitting business, regardless of the normal due dates.
• For the EDD to close your employer account, you must complete Box B on the DE 9, and Box D on the DE 9C.
• You can inactivate your account using the EDD’s Expanded e-Services for Business website .
• NOTE: Mail each form — the DE 88 with payment and the DE 9 and DE 9C separately — to the preprinted address shown on the forms.

Business Acquisitions and Mergers

If a business or corporation (employing unit) is acquired by another business or corporation, the account number of the surviving entity will remain active. The EDD will inactivate the account number of the acquired entity. The surviving entity can request transfer of the reserve account of the acquired entity to lower the tax rate of the surviving entity.

If the business or corporation changes in form (sole proprietorship to partnership, sole proprietorship or partnership to corporation, etc.), but continuity of control of the business does not change, a new employer is not created.

If two or more business enterprises are united by factors of control, operation and use, the EDD’s director can determine that the business enterprises constitute one employing unit. If that occurs, that employing unit must pay unemployment compensation or disability insurance contributions under one consolidated account number. The EDD will consolidate the UI reserve account and the new rate assigned for the current year.

For more information, download the California Employer’s Guide, commonly known as the Form DE 44, from the EDD’s website.

1. UI Code sec. 2602