DI / DE 4500B

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Explanation of State Disability Insurance (SDI) Lien Interest and Penalty Calculations

Background: The California Labor Code sections 4903 and 4904 provide for reimbursement of the Employment Development Department (EDD) liens from a third party when a third party assumes liability or is determined to be liable for State Disability Insurance (SDI) benefits paid in place of other benefits. For the purpose of this notice, a third party is defined as an employer or workers’ compensation carrier. California Unemployment Insurance Code (CUIC) section ‎2629.1(e) requires a third party to pay the EDD interest at the annual rate provided in section ‎19521 of the Revenue and Taxation Code. Interest accrues from the date the EDD lien claimant pays the benefit and not from the date the Workers’ Compensation Appeal Board (WCAB) orders reimbursement. Interest continues to accrue on unpaid amounts due until the date of payment in full is made to the EDD.

Interest is calculated through date employer or insurance carrier accepts liability or is determined to be liable for reimbursement to the Employment Development Department (EDD). This may include the date the overpayment record was established. The interest rate is based on the California Revenue and Taxation Code.

Compound Interest Rate Schedule: The interest rate is adjusted twice a year based on the short-term federal rates in January and July. The interest rate table can be reviewed at edd.ca.gov/Payroll_Taxes/Interest_Rate.htm.

Compounding Interest formula is calculated daily by computing the Effective Interest Rate and multiplying it by the principal amount due.

Effective Interest Rate formula:

(1 + int. rate) nper 365

The exponent “nper” is the number of periods or total days of interest compounded.

The automated system calculates interest as follows:
  • The interest start date is the issue date of each payment included in the overpaid period.
  • The interest end date is the date the employer or insurance carrier accepts liability or is determined to be liable for reimbursement to the EDD.
  • The current semi-annual (January and July) interest rate established pursuant to section 19521 of the Revenue and Taxation Code.
Penalty is calculated at 10% of the amount determined past due and payable to the EDD pursuant to section ‎2629.1(f) of the CUIC. If the WCAB finds that the failure of the third party to pay other benefits upon notice by the Department per CUIC section ‎2629.1(e) was unreasonable and the penalty has not been awarded for the delay pursuant to section 5814 of the California Labor Code.

DE 4500B Rev. 2 (10-21) (INTRANET)