UNITY OF ENTERPRISE

The Employment Development Department (EDD)                            a business enterprise remain in control of the business 
administers payroll reporting requirements for the                     enterprise after a change in the form or organization of an 
Unemployment Insurance (UI), Employment Training                       existing entity. 
Tax (ETT), State Disability Insurance* (SDI), and Personal 
Income Tax (PIT) withholding programs in accordance                    If there is a change in entity or ownership with a 
with the California Unemployment Insurance Code                        continuity of control, the employing unit shall continue as 
(CUIC). Every commercial employer who hires one or                     one entity for California payroll reporting purposes.
more employees to perform services in California and pays 
accumulative wages exceeding $100 during a calendar                    Examples of changes that result in a Vertical UE include, 
quarter becomes subject to the provisions of the CUIC.                 but are not limited to:
Each subject employer is then required to register with 
                                                                       •     An individual proprietorship changes to a corporation, 
the EDD within 15 days of becoming subject or when 
                                                                             a partnership, an association, a limited liability 
there is a change in ownership. In addition, any changes 
                                                                             company, or an estate and the original proprietor 
in business status should be reported by logging onto the 
                                                                             retains control over the new form of ownership.
EDD’s e-Services for Business website at 
www.edd.ca.gov/e-Services_for_Business to manage                       •     A general partnership adds, deletes, or changes 
account information or download and complete the                             partner(s) or changes to an individual proprietorship, 
appropriate DE 1 registration form.                                          a corporation, an association, a limited liability 
                                                                             company, or an estate, as long as one or more of the 
Whenever there is a change in the employer’s legal entity 
                                                                             original partners retains control over the organization.
or when two or more related businesses have a common 
ownership and purpose, the EDD must determine if the                   Note: The sale of corporate stock does not change the 
new legal entity constitutes a new and separate employing              corporate entity so there is no change in the employing 
unit for UI experience rating** purposes or if there is a              unit.
single, continuing employing unit commonly referred as a 
Unity of Enterprise (UE). If it is determined that a UE does           What Is a Horizontal Unity of Enterprise?
not exist, the new legal entity is considered a separate 
employing unit and will be issued a new employer payroll               Section 135.2 of the CUIC defines a “Horizontal” UE and 
tax account number with its own UI reserve account. In                 states, “If two or more business enterprises are united by 
contrast, if it is determined that the original and the new            factors of control, operation, and use, the director may 
legal entities have a common ownership and purpose,                    determine that the business enterprises are one employing 
the new legal entity will be required to report under the              unit.” 
original entity’s employer payroll tax account number and 
utilize its existing UI reserve account.                               When several entities comprise one employing unit per 
                                                                       Section 135.2 of the CUIC, the unit retains a single reserve 
There are two types of UE, “Vertical” and “Horizontal.”                account for UI purposes.
Sections 135.1 and 135.2 of the CUIC establish the 
criteria for UE determinations.                                        Unity of control exists when the majority interest in, or 
                                                                       control of each organization, is held by one individual, an 
What Is a Vertical Unity of Enterprise?                                entity, an association, or some other organization.

Section 135.1 of the CUIC defines a “Vertical” UE and                  Evidence of “control of a business enterprise” includes, 
states that, “A new employing unit shall not be created                but is not limited to:
when there is an acquisition or change in the form 
or organization of an existing business enterprise, or                 1)  Ownership of a majority interest in an organization.
severable portion thereof, and there is a continuity of 
                                                                       2)  Ownership of the assets used to conduct the business 
control of the business enterprise.” A continuity of control 
                                                                             of the organization.
would exist if one or more persons or entities controlling 

*Includes Paid Family Leave (PFL).                                     3)  Security arrangements or lease arrangements 
**Refer to Information Sheet: California System of Experience                regarding the assets used to conduct the business of 
   Rating, DE 231Z                                                           the organization.

DE 231UE Rev. 3 (12-17) (INTERNET)                           Page 1 of 2                                                      CU  

4)  An agreement where the form of ownership, stated        titles for each different corporation) will normally be 
  arrangements, or contract provide for or allow            considered one employing unit if there is also a unity of 
  operation of the business enterprise.                     operation and use.

Unity of operation is evidenced by central financing,       If an employing unit, which is determined to be a 
accounting, and management of each business                 horizontal unity of enterprise, elects to consolidate 
entity which includes, but is not limited to, common        several related entities under a single employer payroll 
management, personnel policies, operating procedures,       tax account number or elects to register for additional 
pricing, collections, and financing.                        account numbers, the election will be processed and will 
                                                            normally be effective for prospective periods.  
Unity of use exists when two or more business enterprises 
share a general system of operation and the enterprises are If an experience rated employer is a horizontal UE, and 
organized for common purposes, and each is coordinated      obtains a new employer rate by electing to consolidate or 
with, or is a part of, the entire operation.                by registering for additional employer payroll tax account 
                                                            numbers, the accounts will be subject to a reserve 
Examples of unity of use between business enterprises       account transfer effective as of the commence date of the 
would be:                                                   new account(s). This is due to the fact that the experience 
                                                            rate of the original account is the same for the additional 
• One company that manufactures automobiles 
                                                            account numbers acquired for the enterprise pursuant to 
  establishes two additional business entities that 
                                                            Section 982(b) of the CUIC.  
  contribute to the production of the automobiles, one 
  entity manufacturing large automotive parts and the       However, if an employing unit is determined not to be 
  other manufactures small automobile parts used to         a horizontal UE, the employer may elect to consolidate 
  produce the automobile.                                   several related entities under a single employer payroll 
                                                            tax account number for UI purposes when the employers 
• Two businesses are established to complement 
                                                            are under common ownership, management, or control. 
  each other. This would be when one company 
                                                            The election will be processed and will be effective for 
  manufactures automobile parts and a second 
                                                            prospective periods pursuant to Sections 1060 and 1061 
  company produces automobiles, especially if the 
                                                            of the CUIC. 
  parts produced by one operation are used by the other 
  operation in the manufacturing of the completed           Refer to Information Sheet: California System of Experience 
  automobile.                                               Rating, DE 231Z, and Information Sheet: SUTA Dumping 
                                                            and Unemployment Insurance Rate Manipulation, 
• A parent corporation is established to coordinate and 
                                                            DE 631SUTA.
  account for the manufacturing, sale, and service of 
  a line of products where each function is run by a        Additional Information
  wholly-owned subsidiary of the parent corporation.
                                                            Please note that UE is applicable to California employers 
Two or more business enterprises are united when they       per the CUIC and that federal law may differ.  
share a general system of operation and control, the 
enterprises are organized for a common purpose or           For further assistance, please contact the Taxpayer 
use, and each is coordinated with, or is a part of, the     Assistance Center at 1-888-745-3886 or visit the nearest 
operation.                                                  Employment Tax Office listed in the California Employer’s 
                                                            Guide, DE 44, and on the EDD website at 
When a corporation is a wholly-owned subsidiary of          www.edd.ca.gov/Office Locator/. Additional information 
another corporation, it is necessary to look at the day-    is also available through the EDD’s no-fee payroll tax 
to-day operations of the businesses to determine if         seminars and online courses. View the in-person and 
there is unity of operation, control, and use between       online course offerings on the EDD website at 
the subsidiary and the parent corporation. If so, the two   www.edd.ca.gov/Payroll_Tax_Seminars/. 
corporations would be only one employing unit for 
California payroll tax purposes. If not, the corporations   The EDD is an equal opportunity employer/program. 
will be considered separate business enterprises for        Auxiliary aids and services are available upon request 
payroll reporting purposes.                                 to individuals with disabilities. Requests for services, 
                                                            aids, and/or alternate formats need to be made by calling 
Corporations that have virtually the same board of          1-888-745-3886 (voice) or TTY 1-800-547-9565.
directors and officers (even if the officers have different 
  This information sheet is provided as a public service, and is intended to provide non-technical assistance. Every attempt 
  has been made to provide information that is consistent with the appropriate statutes, rules and administrative and court 
  decisions. Any information that is inconsistent with the law, regulations, and administrative and court decisions is not 
  binding on either the Employment Development Department or the taxpayer. Any information provided is not intended to 
  be legal, accounting, tax, investment or other professional advice.
DE 231UE Rev. 3 (12-17) (INTERNET)                          Page 2 of 2                                           CU