California Employment Law
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Ultimately the liability is yours to the EDD. In other words it is not a legal defense to the EDD that you hired out the payroll to another company. That being said, you have potential breach of contract and/or negligence claims against both payroll companies. The first company should have transferred the funds to the second. The second company should have actually paid the tax. So you need to really for lack of better term, threaten with litigation for the penalty amount. Clearly the taxes weren't due until after February, so the second payroll company was "on watch" at that point they should have ensured there were adequate funds and paid the tax. Now, where the $9k is I have no idea, probably both companies are holding part of that. But the penalty it seems should be on the second company for not timely paying or realizing there were inadequate funds long before now.