What to expect during an audit

Audits show us if employers are following unemployment laws and rules. Learn how we conduct employer audits and what to expect if we audit your business.

Why and how we choose businesses for audits

We audit employers' records to ensure that they are accurately reporting wages and hours. Being selected for an audit does not mean you violated any laws or rules

The U.S. Department of Labor and state laws and rules require us to audit employers every year. We choose who to audit by:

  • Analyzing data from multiple agencies for patterns of inconsistent reporting.
  • Auditing companies in industries that have been out of compliance in the past.
  • Auditing employers who transfer ownership and change the business type.
  • Investigating reports of fraud submitted by citizens.
  • Randomly selecting employers by computer (about 10% of all audits).

How far back we audit

We usually request 3 years' worth of records. If an auditor finds issues with your business practices, we may expand the audit.

An expanded audit allows the auditor to:

  • Review records from over 3 years ago if you do not file quarterly reports on time.
  • Look at more recent records.

To understand what we can audit under the law, see limitation of actions (RCW 50.24.190).

What we audit

Every audit is different, but we typically check your records, reporting and compliance.

Business records

We look at your financial, accounting and employment records required by law (RCW 50.12.070). These often include:

  • Payroll, accounting and employee time records.
  • Business ownership records and licenses.
  • Bank records, financial statements, check registers, general ledgers, and invoices.
  • State and federal tax records, including IRS Form 1099s.
  • Subcontractor registration numbers, copies of contracts and invoices.
  • Corporate officer opt-in forms.

We'll send you a letter explaining exactly what we need to see.

Employee reporting

We make sure you properly file your quarterly reports and correctly report employees and independent contractors.

Compliance with laws and rules

We check if you are complying with unemployment insurance laws and rules, including:

Issues that auditors look for

An auditor may:

  • Compare your payroll and time records to the wages and hours you reported to us.
  • Review your type of business to see if you're assigned the correct tax rate.

Auditors may also look for evidence of unreported:

  • Employees.
  • Casual labor.
  • Independent contractors.
  • Other workers who provide personal labor.

How to work with us during an audit

If we select you for an audit, follow these steps to help you through the process.

  1. Prepare for the audit

    Watch the Department of Revenue's 8-minute video about how to prepare for an audit.

  2. Communicate with the auditor

    Our auditors may contact you by phone, email or mail. They will tell you which records they need to inspect and set a date, location and time for the audit. They will also send you:

    • Appointment confirmation letter.
    • Pre-audit questionnaire about your business.
    • Required records checklist.

    These documents will have instructions about the information you need to provide and where to send it.

  3. Help speed up the audit

    During the audit, you should:

    • Respond quickly to letters, phone calls and requests for information.
    • Have a representative at the audit appointment who knows your business operations and payroll records.
    • Provide all books and records that the auditor requests.
    • Organize the requested records so the auditor can easily identify them.
    • Respond to the auditor's questions.

  4. Review the audit findings

    After an audit, the auditor will mail you a letter explaining their findings. If they find that you owe taxes, penalties or interest, you will receive a Notice and Order of Assessment (NOA). The NOA describes what you need to pay.

    To pay penalties or set up a payment plan, call 866-697-4831 or email ESCTax@esd.wa.gov.

    For more information, read about what happens after an audit (PDF, 71 KB).

Common audit findings

We often discover the following issues when auditing employers.

Unregistered employers

You might have hired employees without registering an account with us. If you have employees, you need to register and report wages for unemployment taxes.

Unreported workers

You might have incorrectly identified your employees as casual, temporary labor or independent contractors. Read more about independent contractors and text a worker's status.

We refer to the following laws to determine if a worker is an employee:

Under-reported hours

You might not have reported all of an employee's work hours.

Under-reported wages

You might not have reported all of an employee's wages.

Unreported changes to your business structure

You need to tell us when you buy, sell, transfer or reorganize your business. This is required by Washington state's business predecessor and successor laws.

If you do not notify us about changes to your business structure, you may be paying the wrong tax rate. We call this State Unemployment Tax Act (SUTA) dumping.

Appealing audit findings

If you disagree with the findings of an audit, you can: