Frequently asked questions about audits
This information will help you prepare for an audit, and let you know what to expect during and after the audit.
The United States Department of Labor requires New Jersey to implement a comprehensive field audit program as an efficient means of ensuring compliance with the New Jersey Unemployment Compensation law and the timely collection of taxes on an equitable basis. Each year, about one percent of New Jersey employers are selected for audits, per federal Tax Performance System (TPS) guidelines.
Audits are performed to verify your reported payroll and exclusions taken for unemployment compensation purposes, to ensure that benefits have been charged correctly to your account, and to answer any questions you may have regarding the Unemployment Compensation law.
We also conduct audits resulting from referrals from Unemployment claims, Temporary Disability claims, Division of Wage and Hour inquiries, federal and state agency referrals, etc. The auditor can tell you why you were selected.
The length of time depends on the size of the employer, the condition of the employer's records, and questionable issues or problems encountered, if any. Some audits take from two to four hours while others may require multiple visits, and may not be resolved for a few months. The auditor will better be able to answer this question for you.
Contact the auditor immediately at the telephone number listed on the scheduling letter. We will reschedule the audit if necessary. Please provide several alternate dates when you will be available so that we can reschedule promptly.
You may designate a representative to provide the records to the auditor. That individual should understand your records and be able to answer questions. Your designated representative may be your accountant, bookkeeper, or other responsible individual.
Usually, the audit will cover the previous calendar year, unless we discover issues that could affect other years. The scheduling letter lists the time period for which records must be provided. If the audit is not expanded beyond the one-year period, it may not be necessary for the auditor to examine the records of other years. However, have all requested records available for all years in case they are needed. Records must be retained and readily accessible at the New Jersey place of business for the current calendar year and for the four preceding calendar years, per N.J.A.C. 12:16-2.4a.
The records to be examined are listed in the scheduling letter. These include, but are not limited to:
- payroll records
- cash disbursements records
- check books and canceled checks
- federal and state tax returns
- financial statements
- detailed general ledger
- corporate minutes book
- form W-3 transmittal with forms W-2
- form 1096 transmittal with forms 1099
- Workers' Compensation policy
Not all employers maintain all these records, but those you do maintain must be made available to the auditor.
Furthermore, payments to individuals not on payroll for services rendered will be scrutinized for proper classification as an "independent contractor" or "employee." Have the following information available for the auditor's examination:
- business licenses
- business telephone listings
- business cards and stationery
- sddress and telephone listing for each individual receiving such payments
The auditor must examine a variety of records and documents to verify ownership, location, and type of business, and confirm that payroll was correctly reported for unemployment compensation purposes. Payments for individuals not on payroll for services rendered are recorded differently from employer to employer. The auditor is required to scrutinize all records that may show payments to individuals for services rendered, and determine if these payments have been properly classified.
New Jersey Unemployment Compensation Law (N.J.S.A. 43:21-11(g) and N.J.A.C. 12:16-2) requires employers to provide records to the auditor for examination. If you refuse to do so, the records can be subpoenaed. The same law declares that all records, reports, and other information obtained from employers will be held confidential.
At the completion of the audit, the auditor will discuss the results of the audit with you. If you disagree with the findings, the auditor will explain the appeals process to you. After the audit is reviewed by a supervisor, we will mail you an "exit letter" stating our audit findings, along with a questionnaire about the auditor.
If required, the auditor will provide you a summary of any audit adjustments, with contribution reports for signature and the payment due.
If you disagree with the audit findings, you must inform the auditor at the exit interview. The auditor's report will indicate that you are contesting the audit findings, and we will send you a Director's letter with instructions on how to file an appeal. You must reply to that letter within 30 days to file an appeal.
Any contributions, interest, and penalty due must be paid. If you are unable to make full payment immediately, you can initiate an installment arrangement with the auditor. Interest will continue to accrue on the unpaid balance of the contributions.
Contact your accountant to find out if you are liable for any additional taxes.
Under the New Jersey Unemployment Compensation law, individuals receiving payment for services rendered are presumed to be your employees unless it is determined that the services are either exempt by law or such services satisfy the three provisions of N.J.S.A. 43:21-19(i)(6)(A)(B)(C), known as the "ABC" test.
The auditor must determine that all three test requirements are satisfied for each individual. The auditor can answer additional questions about the "ABC" test.
You can contact the auditor directly at the telephone number on the scheduling letter, or ask to speak with the auditor's supervisor.
You can also contact the appropriate field office for help: