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Purchasing a Business with Employees If you purchase a business with employees (or that
previously had employees), you may be held liable for the previous owner’s EDD
liability if a Certificate of Release of Buyer (DE 2220) is not obtained. The
seller (or you) may contact the Employment Tax Call Center at (888) 745-3886 to request a
DE 2220. For your protection, escrow funds should not be disbursed until the DE 2220 has
been issued. Compliance with Section 3440, Code of Civil Procedure, which requires you to
publish a Notice of Intended Sale of Business, will not relieve you if the
former owner owes EDD.
The DE 2220 is issued after the seller pays all
amounts owed to EDD. Once the DE 2220 is issued, you cannot be held liable for any of the
seller’s unpaid state payroll taxes. For more information, refer to Requirements
for Obtaining Certificate of Release of Buyer When a Business Is Sold (DE 3409A).
If you acquire all or part of another
employer’s business, you may receive all or part of the seller's reserve account
balance by completing an Application for Transfer of Reserve Account (DE 4453). The
transfer may immediately reduce or increase your unemployment insurance tax rate. If your
application results in a higher rate, you will be notified and given the option of
withdrawing your application. For more information on reserve account transfers, refer to Information
Sheet: California System of Experience Rating (DE 231Z) or contact our Contribution
Rate Group at (916) 653-7795. (There are time limits to qualify for a reserve account
transfer – apply for the transfer immediately after you purchase a business.)
If you acquire an ongoing business and employ any
of the former owner’s workers, these employees are considered new hires and should be
reported to the New Employee Registry.
However, if immediately after the acquisition you employ any of the former owner’s
workers, the wages paid to these employees during the same calendar year are considered as
having been paid by you. Therefore, wages paid by the former owner in the current calendar
year are applied to the taxable wage limits
for Unemployment Insurance (UI), Employment Training Tax (ETT), and State Disability
Insurance (SDI).
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