| Office | California Employment Development Department (EDD), the state's payroll tax and unemployment insurance agency |
|---|---|
| Paperwork | Notice of the sale and final payroll reports from the seller; a new employer account and a response to the transfer notice from the buyer |
| Timing | Tell EDD about the sale promptly, and have final payroll filed after your last payday |
Watch for this: A buyer who takes over most of a business may be treated as a successor, and ignoring EDD's transfer notice can lock in a rate the buyer did not expect.
Why EDD Gets Involved
EDD collects payroll taxes and runs unemployment insurance for California employers. Your account carries an experience record, which sets part of the rate you pay. When a company changes hands, EDD may decide whether the buyer inherits that record.
What Happens to the Experience Rating
A buyer who acquires a business, or most of its assets, can be treated as a successor. EDD may send a notice about transferring the seller's reserve account and rating to the buyer.
The buyer must respond, and the answer can affect the contribution rate going forward. Missing the deadline can leave the buyer with whatever rate EDD assigns.
Each side has a stake. A seller with a good record may want it to move. A buyer might prefer a fresh start. Ask EDD how a choice is handled for your kind of sale.
Tell Your Staff at the Right Time
Employees do not move to a buyer automatically. In an at will state they can leave, and contracts matter. Keep the news quiet until closing is close, then introduce the new owner. Most people stay when pay and benefits hold steady.
What a Seller Does
- Pay all employees through the last day and file the final payroll reports
- Report the sale to EDD and close the employer account when told to
- Pay out accrued wages and vacation as California rules require
- Keep payroll records, since EDD can audit past periods
What a Buyer Does
A buyer who will employ people needs their own EDD employer account number. They register through EDD and answer the transfer notice. If staff move over, the buyer should keep pay and benefits steady, since employees who see steady pay tend to stay.
Common Mistakes
Sellers sometimes forget the last payroll report, or leave accrued vacation unpaid, or close the account before every wage is reported. Each can lead to notices after you have already been paid. Put a payroll checklist in your closing file.
Payroll Must Be Clean Before a Sale
Buyers and lenders look at payroll closely. Off the books pay is a serious red flag, and records that do not match your returns can end a deal. Read how buyers pay for what lenders ask.
If you run a freight firm, see how that plays out in the trucking and drayage page. For sales tax, see CDTFA tax clearance.
This page is not tax or legal advice. Confirm each step with EDD, your CPA or your attorney.
Start with a number: request a valuation.