Hiring your first employee is exciting, and it can be overwhelming. There are a lot of hiring regulations, employment laws, and documentation to account for. As a business owner in Colorado, it’s crucial to know your state’s employer obligations. Here are six steps to hiring employees in Colorado:
Step 1: Take care of logistics
The first step of the hiring process is to register with the correct federal and state departments. Set aside time to take care of these tasks:
Apply for a federal employer identification number (EIN) on the IRS website
You can’t hire employees unless you have an official federal employer identification number (EIN) with the Internal Revenue Service (IRS). If you’re just starting your business or if you’ve been operating a sole proprietorship or single-member LLC, you can apply for an EIN on the IRS website. You just have to fill out an application, then you’ll get your tax ID.
Register with the Colorado Department of Revenue
As an employer in the state of Colorado, you have to withhold Colorado income tax from your employee’s wages. To do that, you need to apply for and maintain a Colorado wage withholding account with the Colorado Department of Revenue. If you haven’t set up an account yet, you can apply for one at MyBiz.Colorado.gov.
Register for Colorado’s unemployment insurance agency
Colorado employers must register with the Colorado Department of Labor and Employment (CDLE) to pay unemployment insurance taxes. The state of Colorado requires you to pay unemployment insurance premiums (which help support Colorado residents who need unemployment assistance) if:
- You paid wages of $1,500 or more during a calendar quarter in the current or preceding calendar year or
- You employed at least one person for some portion of the day in each of 20 different weeks during the current or preceding calendar year.
Register for workers’ compensation insurance
All Colorado employers with at least one employee are required to carry workers’ compensation insurance. Workers’ compensation insurance coverage gives your employees medical and wage-loss benefits in the event of a job-related injury. It also provides some liability protection to the employer.
To get workers’ compensation insurance, connect with a private commercial insurance carrier. You can use the CDLE’s insurance search tool here. For more resources and information on workers’ compensation, review the CDLE’s website.
Register for Colorado occupational privilege taxes
If you conduct business in certain Colorado cities, you’re also required to pay an occupational privilege tax (OPT), which is a head tax on certain types of workers. Both employees and their employers pay these taxes at a flat rate (not a percentage of an employee’s wages).
There are five cities that levy OPT:
- Aurora: $2 per month for employees and $2 per month for employers
- Denver: $5.75 per month for employees and $4 per month for employers
- Glendale: $5 per month for employees and $5 per month for employers
- Greenwood Village: $2 per month for employees and $2 per month for employers
- Sheridan: $3 per month for employees and $3 per month for employers
Visit the city websites linked above to learn more about how and when to pay OPT.
Register for Colorado’s Family and Medical Leave Insurance Program
Colorado’s Family and Medical Leave Insurance Program (FAMLI), which gives Colorado workers access to paid leave, requires all Colorado employers with at least one employee to register for and opt into the program. As an employer, you help support the program by deducting and remitting premiums from your employees’ paychecks.
If you have 10 or more employees, you’re required to pay a 0.9% employer’s premium once per quarter. If you have nine or fewer employees, you don’t have to pay the employer’s share, but you do have to regularly send the 0.45% employee share to the state.
Step 2: Understand your hiring costs and tax liability
As a Colorado employer, you need to account for three main employment costs: 1) recruiting expenses, like job site subscriptions, 2) your employee’s compensation package, which can include wages, health insurance, paid time off, and other worthwhile employee benefits, and 3) payroll taxes.
Here are the core Colorado employer taxes to know about:
- Under the Federal Insurance Contributions Act (FICA), the Social Security tax rate is 6.2% for an employer and 6.2% for an employee. The rate for Medicare taxes is 1.45% for an employer and 1.45% for an employee.
- The annual state unemployment insurance (SUI) tax rate for new employers in Colorado is 0.017% on a wage base of $20,400.
- The Federal Unemployment Tax Act (FUTA) works alongside state unemployment insurance programs. The FUTA tax rate is 6% on the first $7,000 of employee wages. However, if you pay SUI taxes on time and in full, you can get a credit on FUTA taxes of up to 5.4%, dropping your FUTA tax liability to 0.6%.
- If you have employees, you have to withhold state income tax from their pay. For additional information on withholding rates and filing deadlines, download the Colorado Wage Withholding Tax Guide.
- If you conduct business in Aurora, Denver, Glendale, Greenwood Village, or Sheridan, you’re also required to pay OPT. These flat tax rates vary, so make sure you double-check with your city’s Department of Revenue.
Do you have enough money to hire an employee in Colorado? Use this calculator to find out.
Step 3: Check Colorado labor laws
Before you hire a new employee in Colorado, take the time to review state and federal labor laws. These include rules about minimum wage, overtime, pay transparency and reporting, pay equity, and the classification differences between full-time employees and independent contractors.
Here are a handful of key Colorado labor laws from the CDLE’s Division of Labor Standards and Statistics:
- The minimum wage for Colorado employees is $13.65 per hour. However, the minimum wage in Denver ($17.29/hour) is higher due to the city’s increased cost of living. Review the 2023 Local Minimum Wage Report for more information.
- Per state and federal law (the Fair Labor Standards Act), non-exempt Colorado employees who work more than 40 hours in a workweek or 12 hours in a day must be paid overtime pay. Read the Colorado Overtime and Minimum Pay Standards (COMPS) order for more information.
- Colorado is an employment-at-will state, meaning employers have the right to fire employees at any time without reason or cause. Employees also have the right to quit their jobs at any time without reason or warning.
- The Colorado Healthy Families and Workplaces Act requires all employers in the state to give employees (part-time, temporary, seasonal, and full-time workers included) paid sick leave. Employees earn one hour of accrued paid sick leave per 30 hours worked, up to 48 hours per year.
- Under Colorado law (FAMLI), Colorado employers are required to give employees up to 12 weeks (and sometimes more) of paid leave for a variety of circumstances, including disability recovery, caregiving, parental leave, and military-related leave.
- The Colorado Employment Opportunity Act makes it illegal for employers to request or use credit information (like credit reports) in employment decisions for certain employees and job applicants.
- Colorado’s Social Media and the Workplace Law prevents employers from accessing job applicants’ and employees’ personal social media accounts.
- Colorado has a Workplace Accommodations for Nursing Mothers law that requires employers with one or more employees to provide nursing parents with reasonable unpaid break time to express milk at work.
- Colorado’s Equal Pay for Equal Work Act is an anti-discrimination law that makes it illegal to pay an employee less than the opposite sex for the same work.
- Colorado’s Equal Pay for Equal Work Act Part 2 addresses pay transparency; the law requires Colorado employers to include compensation in job postings, notify employees about advancement opportunities, and maintain job description and wage rate records.
- Colorado’s Chance to Compete Act (also known as a “ban the box” law) prevents employers with 11 or more employees from requesting a job candidate’s criminal history on a job application.
Step 4: Fill out the Colorado new hire reporting form and furnish forms to employee
When you hire new employees in Colorado, you need to report information about those employees to the Colorado Office of Economic Security’s Division of Child Support Services within 20 days of the employee’s official hiring date.
The hiring date is generally considered to be the first date an employee performs services you’ll pay them for, or the first day an employee on commission is eligible to earn a commission. You have to report both newly hired employees as well as rehired employees.
Create an online account with the Colorado State Directory of New Hires to begin the new hire reporting process. You’ll provide your employee’s name, address, Social Security number, date of birth, and work start date. For more information, read these new hire reporting requirements.
From there, carve out some time to complete these additional hiring documents, including:
- Employment contract: It’s a good idea to provide an employment contract detailing the job responsibilities your employee will have, the wages you’ll pay, and key workplace policies available in your employee handbook.
- Form I-9: The US Citizenship and Immigration Services (USCIS) uses Form I-9, the Employment Eligibility Verification Form, to verify that employees are able to work in the US. As an employer, you have to complete the I-9 form for every employee you hire, and each employee must attest to their employment authorization. You don’t have to file Form I-9 with the USCIS or Immigration and Customs Enforcement (ICE). Instead, you hold onto the form as a record for at least three years from the date of hire or from one year after the worker’s employment ends. Download Form I-9 and read the completion instructions here.
- Form W-4: Each new employee you hire needs to complete IRS Form W-4, The Employee’s Withholding Certificate, on or before the date of their employment. Form W-4 determines how much federal income tax should be withheld from the employee’s paychecks. Download the form.
- Form DR-004: Give employees Form DR-004, the Colorado Employee Withholding Certificate, to fill out.
Make sure you keep copies of all the above documents as part of your business’s records.
Step 5: Set up your payroll system
Hiring an employee is the perfect opportunity to set up or update your payroll system. An all-in-one payroll platform simplifies the payment process and keeps you organized with federal and state taxes. Regardless of which payroll method you use, don’t forget to account for the following withholding taxes:
- Federal income withholding taxes: You’ll use Form W-2 to file federal income tax withholding reports to the IRS. You’ll also file Form 941 on a quarterly basis and Form 940 annually.
- State income withholding taxes: Colorado employers also have to file withholding tax returns and pay taxes on a quarterly, weekly, or monthly basis. Download the forms here.
Need help determining withholdings for your employees? Use Gusto’s Colorado hourly paycheck and payroll calculator and Colorado’s salary paycheck and payroll calculator.
Step 6: Display labor law posters and required notices
Colorado requires employers to post certain labor law signs in the workplace, so employees know their rights, benefits, and obligations on the job.
Take a look at CDLE’s posting requirements to see which notices you’re obligated to post and how to download them. While you’re at it, gather and download all the required federal labor law posters from the US Department of Labor as well.
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