Department of Labor and Regulation

Unemployment Insurance

Unemployment Insurance Tax - Frequently Asked Questions About Audits

Why does the Department of Labor and Regulation perform UI Tax audits?

Why me?

What will the auditor look for?

What types of issues may arise?

How long does a UI tax audit take?

What if I paid for services, such as subcontractors, that I don’t consider payroll? Can I later be taxed for those payments?

How far back will the audit cover?

What records will be needed?

Where will the audit take place?

Should my accountant be present?

What if I don’t have any employees?

When can I expect to hear the audit results?

What if DLR determines that I owe tax, interest, and penalty, but I am unable to pay it?

Will I owe money to the IRS and/or the South Dakota Department of Revenue?

What if I don’t agree with the audit findings?

Does my hearing request stop interest from accruing?

Can I reschedule an audit?

back to top

Why does the Department of Labor and Regulation perform UI Tax audits?

State and federal taxing agencies perform UI tax audits to ensure compliance with laws. South Dakota unemployment law is in South Dakota Codified Law (SDCL)Title 61. SDCL 61-3-1 and 61-3-2 give the Department of Labor and Regulation (DLR) authority to audit employer records. Employers must allow DLR to review records when asked.

back to top

Why me?

There may be several reasons your business was chosen for an audit. Employers may be randomly selected. The random sample includes a variety of employers based on size or type of firm.

A former employee may have filed a UI claim, and there may be a question concerning wages that were not reported or the amount of wages that were reported.

back to top

What will the auditor look for?

The auditor confirms all wages were reported correctly and all taxable wages were computed correctly.

back to top

What type of issues may arise?

Common types of errors are: payments for casual and contract labor, commissions, corporate officer’s pay, reporting of some types of employee benefits, and misclassification of workers as independent contractors.

back to top

How long does a UI tax audit take?

This depends on the number of employees, the condition of the records, and any questions that are raised. Some audits take two hours, and others may take longer.

back to top

What if I paid for services, such as subcontractors, that I don’t consider payroll? Can I later be taxed for those payments?

Yes. Any individual who is paid to perform services for you can be considered an employee unless their services meet exclusions in the UI Tax law.

back to top

How far back will the audit cover?

The usual audit covers one calendar year, but can go back up to six years. After the audit begins, the time frame may be expanded based on the findings.

back to top

What records will be needed?

Payroll records, including W-2s, 1099s, 940s, 941s, federal income tax returns, IRS records, and general disbursement records such as check registers, invoices, and cancelled checks.

back to top

Where will the audit take place?

The audit will take place in the location of the records. This is typically the employer’s office, but may be at an accountant’s or attorney’s office. You may also bring your records to the auditor’s office.

back to top

Should my accountant be present?

That decision is up to you. You may consult with your accountant at any time during the audit process.

back to top

What if I don’t have any employees?

The DLR UI Division may conduct an audit to confirm this.

back to top

When can I expect to hear the audit results?

There will be a post-audit interview as soon as the audit is complete. At the post-audit interview, you will be given an Audit Summary report.

back to top

What if DLR determines that I owe tax, interest and penalty, but I am unable to pay it?

A reasonable payment plan can be arranged if the liability cannot be paid immediately.

back to top

Will I owe money to the IRS and/or the South Dakota Department of Revenue?

You would need to contact those agencies to determine if you owe additional tax.

back to top

What if I don’t agree with the audit findings?

You may may appeal the findings by requesting a hearing upon receipt of the Audit Summary. An appeal must be made within 20 days, must be in writing, and state why you believe the audit result is incorrect. Hearings are conducted by telephone before an Administrative Law Judge.

Send appeals to the following address:

South Dakota Department of Labor and Regulation
Unemployment Insurance Division
Attn: Appeals
P.O. Box 4730
Aberdeen, SD 57402

Please visit our Appeals Web page for more information.

back to top

Does my hearing request stop interest from accruing?

No. However, you can do so by paying the amount owed. If you prevail at the hearing, your money will be refunded.

back to top

Can I reschedule an audit?

Yes, unless the audit is dealing with an urgent matter, such as an unemployment claim. To arrange another date and time, contact the auditor as soon as possible.

back to top

For more information, contact:

South Dakota Department of Labor and Regulation
Unemployment Insurance Division
P.O. Box 4730
Aberdeen, SD 57402
Tel: 605.626.2312
Fax: 605.626.3347


Marcia Hultman, Secretary
700 Governors Drive
Pierre, SD 57501-2291
Tel. 605.773.3101
Fax. 605.773.6184