The mere word – “audit” – can strike fear in the hearts of the courageous and can cause one to want to run away and hide. But, each year, thousands of Pennsylvania employers are selected for audit to ensure compliance with the reporting and taxation provisions of the Pennsylvania Unemployment Compensation (UC) Law. Survival is not limited to the fittest, but preparation is key. The best way to prepare is to have all of the necessary records readily available before the audit appointment letter arrives.
Under Section 206 of the UC Law, employers are required to keep accurate employment records. Section 63.64 of the UC Regulations sets forth the information that must be contained in those records:
(1) Social security account number.
(2) Full name.
(3) Wage rate (hourly, daily or piece rate, weekly, monthly or annual salary).
(4) Total remuneration paid for each pay period by type of payment (cash and fair market value of noncash remuneration).
(5) Traveling or other business expenses actually incurred and accounted for, and the dates such expenses were incurred and were paid by the employer.
(6) Place of employment.
(7) All scheduled hours and hours worked.
(8) Daily attendance record, showing the dates on which the worker actually worked, and time lost due to reasons other than lack of work.
(9) If separated, the date and the reasons for separation.
(10) Number of credit weeks.
(11) Documentation of payments made to worker, including bank statements, cancelled checks, check stubs, and electronic funds transfer records.
(12) If the worker is covered by an arrangement described in section 4(j)(2.1) of the law, the contract between the employer and the other party to the arrangement.
(13) Any contract between the employer and the worker.
(14) If the employer considers the worker to be an independent contractor or otherwise not an “employee” under the law, all records, documentation and evidence supporting that position.
(15) Federal and State tax returns for the periods when the worker was employed.
The employment and payroll records listed above are to be retained either at the place of employment or at an established central recordkeeping office for at least 4 years after contributions relating to the records have been paid. Daily attendance records need not be retained for more than 2 years.
If an audit is scheduled, the period of time for which records will be reviewed will be set forth in the appointment letter. Usually, audits cover one calendar year; however, if the auditor discovers a problem with the records, the audit may cover a longer period of time.
The employer or an authorized individual familiar with the employer’s records, such as a bookkeeper or accountant, should be present during the audit. The time needed to complete an audit varies from employer to employer and depends upon the size of the employer, the condition of the employer’s records, the cooperation of the employer, and the number of issues discovered by the auditor, if any, that must be addressed. The auditor may discuss his or her findings with the employer before leaving the employer’s place of business. In any case, once the auditor and his or her supervisor have completed their review of the audit, a letter will be mailed to the employer with the approved audit findings. If the employer disagrees with the auditor’s findings, the employer has the right to appeal.
More information regarding audits and an employer’s right to appeal may be found at the Department’s website: www.uc.pa.gov. Questions may also be addressed to Thomson, Rhodes & Cowie at: [email protected].
For a confidential analysis of your unemployment compensation issues, or questions about TRC’s unemployment compensation practice area, please contact Margaret M. Hock, Esquire at (412) 316-8647 or [email protected].
Important Notice: This information is intended for general guidance only, and should not be used as a substitute for specific legal advice. For specific legal advice applicable to your situation, you should consult an attorney of your choice. Although believed to be accurate when written, no guarantee of completeness or accuracy to your particular circumstances should be implied. Laws, regulations, and court decisions in this area change frequently, and you should consult the attorney of your choice for up-to-date information.
 If an employer refuses to allow access to its records, the Department may subpoena the records and enforce the subpoena in civil court. A penalty of $1,500 may be assessed for each day an employer withholds its records. An employer may be subject to criminal fines or imprisonment for up to 30 days for failure to produce the records.