Colorado’s payroll is relatively straightforward in contrast to states like New York with challenging payroll rules that can change often. Colorado requires businesses to pay state unemployment taxes and has a minimum wage over $12. The state also requires income taxes. We break down the steps on how to do payroll in Colorado so you can navigate the process of managing payroll taxes and employee payments successfully.
If you have more than a few employees, you may want to consider using payroll software like Gusto. It covers Colorado along with the other 49 states and is up-to-date on state payroll regulations, so you have backup. You can pay your employees via direct deposit or paper check at no additional cost. It also files your taxes on time to help you avoid IRS penalties. Sign up to start a 30-day free trial.
Step-by-Step Guide to Running Payroll in Colorado
It is relatively simple to handle payroll in Colorado because it doesn’t have special taxes or many state-specific forms. Here are your basic steps for running payroll in Colorado.
Step 1: Set up your business as an employer. Get your company’s Federal Employer Identification Number (FEIN). If your company is brand-new, you may need to apply for a FEIN. This is a simple process that can be completed online via EFTPS. If you work for a company that already has one, keep the FEIN handy. The FEIN is required to pay federal taxes.
Step 2: Register with Colorado. Any company that pays employees in Colorado must register with the Colorado Secretary of State. You must also register with the Colorado Department of Revenue and the Department of Labor and Employment so you have an account to credit your withholdings.
Step 3: Create your payroll process. If you work for an established business, you may have inherited a payroll process. But if your company is brand-new, you may need to start your payroll process. Overall, you can opt to do payroll yourself (not recommended), set up an Excel payroll template, or sign up for a payroll service to help you handle your Colorado payroll.
Step 4: Have employees fill out relevant forms. New employees should submit certain documentation, including payroll forms, during onboarding. All employees must complete I-9 verification no later than their first day on the job. Every employee must also have a completed W-4 on file. Colorado does not have a separate W-4 form so you can use the federal version. Employees must also provide you with direct deposit information.
Step 5: Review time sheets. This step is one you’ll repeat as you do payroll each period. Keeping track of employees’ hours is essential for ensuring accurate payroll. Whether you use paper time sheets or time and attendance software, review time sheets for accuracy and discuss any errors or issues with employees right away. Having employees sign their time sheets is a good idea, whether they do so electronically or by pen on paper.
Step 6: Calculate employee pay and taxes. You will be able to simplify your life and reduce mistakes if you use a standard process and payroll software to calculate pay. There are many ways to calculate payroll, and it’s up to you to decide which is best for you. You can use payroll software, or even Excel. Keep in mind, manually calculating Colorado payroll taxes could lead to problems. Calculations are complex, so errors are easy to make.
Step 7: Pay employee wages, benefits, and taxes. Most companies today use direct deposit to pay their employees, but cash (not the best way) and paper check are also options. You can pay your federal and state taxes online. If you use a benefits provider, it should work with you to make deductions simple, automatic, and electronic.
Step 8: Save your payroll records. As with most business records, you want to keep copies. If you ever need to refer to a paystub, you want to know where to find it and that you have it. The compliance of your business depends on maintaining records for all employees, including those who have left. Colorado has no additional rules for document storage, so follow federal guidelines.
Step 9: File payroll taxes with the federal and state government.
All Colorado state taxes need to be made to the applicable state agency on the schedule provided, usually quarterly, which you can do on the Colorado Department of Revenue website. If you operate in a Colorado jurisdiction with local taxes, you will also need to remit those taxes to the correct agency on the schedule provided to you. To pay federal taxes, you can make those payments online using the Electronic Federal Tax Payment System (EFTPS), on one of the following two schedules:
- Monthly: When the IRS assigns you a monthly schedule, you need to deposit employment taxes on payments made during a calendar month by the 15th of the following month
- Semi-Weekly: When the IRS assigns you a semi-weekly schedule, you must deposit employment taxes for payments made Wednesday, Thursday, and Friday by the following Wednesday, and for payments made Saturday, Sunday, Monday, and Tuesday, by the next Friday
Please note that reporting schedules and depositing employment taxes are different. Regardless of the payment schedule you are on, you only report taxes quarterly on Form 941 or annually on Form 944.
Step 10: Complete year-end payroll reports.
At the end of the year, you will need to first complete all W-2 forms for your employees and 1099 forms for your independent contractors. These forms must be provided to employees and contractors no later than Jan. 31 of the following year.
Learn more about doing payroll yourself in our guide on how to do payroll. It has a free checklist you can download to make sure you don’t miss any steps.
Colorado Payroll Laws, Taxes, and Regulations
Colorado generally follows federal regulations. To make sure that your company adheres to all laws and regulations, it’s a good idea to speak with an employment law expert in your area. To ensure you maintain compliance with payroll regulations, review the ins and outs of doing payroll in Colorado below.
With few exceptions, most employers in the US must pay Federal Insurance Contributions Act (FICA) taxes. The current FICA tax rate for Social Security is 6.2% and 1.45% for Medicare. Beyond federal taxes, Colorado levies state taxes on businesses and employees. Businesses must calculate and withhold the correct amount of tax from employees and pay a percentage from their own bank accounts.
Employer Unemployment Taxes
All businesses in Colorado must pay State Unemployment Tax Act (SUTA) taxes. The current rate for employers is 6% of the first $7,000 of each employee’s taxable income. Businesses that pay SUTA in full and timely can claim a tax credit of up to 5.4% on your Federal Unemployment Tax Act (FUTA) taxes.
To learn more about FUTA requirements, check out our guide on FUTA and Form 940.
Colorado businesses with one or more employees must carry workers’ compensation insurance. Maintenance or repair work as well as domestic work are exceptions to this requirement. Workers’ compensation premiums will vary depending on the industry in which your company operates.
Check out our Colorado workers’ compensation guide to learn more about state requirements, costs, and providers.
For employees, income taxes are a big item you need to keep in mind as more employers allow remote work: If an employee resides in Colorado but works in another state, they may not have to pay Colorado state income tax. For most employees, you will need to deduct state income taxes from each paycheck. Pay close attention to where employees live because several cities and municipalities in Colorado require additional income tax withholdings. Colorado has five jurisdictions that levy a flat dollar amount per month in income tax:
Per Month Income Tax Rate
Colorado Minimum Wage
Colorado’s minimum wage is currently $12.32 per hour—more than the $7.25 federal minimum wage. For tipped employees, no more than $3.02 per hour in tips can be used to reach the minimum wage. If an employee’s tips plus the cash wage do not equal $12.32 per hour, the business must make up the difference.
Beginning in 2022, Colorado’s minimum wage will increase based on Consumer Price Index cost of living adjustments for Colorado. Denver has a separate minimum wage, above both the state and federal minimum. In 2021, Denver’s minimum wage is $14.77 and will increase to $15.87 in 2022. After that, Denver will use the same calculation as the state to make annual adjustments.
If you have employees who are eligible for overtime pay, you must calculate their overtime as 1.5 times their regular rate. An employee is eligible for overtime if they have worked:
- Over 40 hours in a single workweek
- Over 12 hours in a single workday
- Over 12 consecutive hours regardless of the start and end time of the workday
To help ensure your overtime calculations are accurate, use our overtime calculator to verify.
Colorado requires that employers pay employees at least once per month. You are free to run payroll more frequently. Regardless of the pay schedule your company uses, you must have regular and consistent paydays. You cannot move the days around to help with your cash flow. As a result, if you pay your employees alternate Fridays, you must stick to it.
You also have several options for paying your employees:
- Paper check
- Direct deposit
- Pay card
If you need to pay an employee right away and aren’t currently using a service, use one of our recommended ways to print a free payroll check.
Pay Stub Laws
When you pay your employees, Colorado law states you must give them a written or printed paystub. The paystub must clearly state:
- Gross wages
- All withholdings and deductions
- Net wages
- Pay period dates
- Business name and address
- Employee name or Social Security number
Colorado Paycheck Deductions
Besides the deductions listed above, your company cannot deduct additional amounts from an employee’s paycheck unless the deduction is:
- Mandated by local law or approved by a court
- To repay loans made by your company to the employee
- To recover stolen property of the business
- Approved by an employee for a legal reason
Terminated Employee’s Final Paychecks
If an employee quits, your job is easy. You must pay them for the hours they worked on the next regular payday after their departure.
If an employee is fired, you must pay the employee immediately. If you are not able to cut the employee’s final paycheck on the same day they are terminated, you need to send it the next business day.
If you need to pay an employee right away and aren’t currently using a service, use one of our recommended ways to print a free payroll check.
Colorado HR Laws That Affect Payroll
Colorado’s HR and employment laws align with federal regulations. For your company to remain compliant though, you must consider certain nuances.
Colorado New Hire Reporting
Colorado requires that employers submit new hire information to the Colorado State Directory of New Hires. The state uses this information to locate parents who may owe child support.
Breaks, Lunches, and Nursing Mothers
Colorado law requires that every business provide paid 10-minute breaks for every four hours an employee works. Employers and employees may agree in writing to modify this break period to two five-minute breaks.
When an employee works over five consecutive hours in a day, their employer must provide them with a meal break of at least half-hour. This meal break may be unpaid, unless the employee cannot step away from their duties. If an employee needs to keep working, they must be allowed to eat during this time and must be compensated.
Employers must provide mothers with an unpaid nursing break for up to two years after giving birth. The company must also make reasonable efforts to give the mother a private space to nurse.
Colorado Child Labor Laws
Colorado generally follows the Fair Labor Standards Act (FLSA) child labor laws. Under the FLSA, there are restrictions for workers under the age of 18.
It is illegal for minors to work more than 40 hours in a week or more than eight hours in a 24-hour period in Colorado. Besides this requirement, no minor can work between the hours of 9:30 p.m. and 5 a.m., unless the minor is working as a babysitter or the next day is not a school day.
Time Off and Leave Requirements
Colorado has become one of just a few states that provides for family leave. Employees in Colorado will be eligible to receive up to 12 weeks’ partial pay for family and medical leave beginning in 2024. In addition, employees will be eligible for four more weeks if their leave is related to a serious health condition caused by pregnancy or childbirth complications.
Employees will receive a maximum benefit of 90% of the state’s average weekly wage through a new Colorado payroll tax paid by both employers and employees. For companies with fewer than 10 employees, the employer share of this tax will not be imposed.
Colorado does not have a law requiring employers to offer employees paid time off. Employers are free to create paid time off policies and must abide by them.
As of Jan. 1, 2021, Colorado requires employers to provide paid sick leave to their employees. Initially, this law applies to businesses with 16 or more employees. Starting Jan. 1, 2022, this law will apply to all Colorado businesses. Each eligible employee shall accrue one hour of paid sick leave for every 30 hours worked, up to a maximum of 48 hours of paid sick leave per year.
If you need help calculating your PTO accrual, use our free PTO calculator.
According to Colorado law, employers must allow workers no more than two hours of paid time off for voting, provided they request leave a day in advance. If the employee has three or more hours after the opening or before the closing of polls outside of their normal working hours, an employer does not have to grant the leave request.
Colorado Payroll Forms
Payroll forms can vary from state to state, and some have their own W-4. Fortunately, Colorado has no state-specific forms.
Federal Payroll Forms
Here is a complete list and location of all the federal payroll forms you should need.
- W-4 Form: Provides information on employee withholdings so you can properly calculate and withhold federal and state income taxes
- W-2 Form: Used to report total annual wages for each employee
- W-3 Form: Used to report total annual wages for all employees
- Form 940: To calculate and report unemployment taxes due to the IRS
- Form 941: Used to file quarterly income tax
- Form 944: Used to file annual income tax
- 1099 Forms: Provides information for non-employee contract work
For a more detailed discussion of federal forms, check out our guide on federal payroll forms you may need.
Colorado Payroll Tax Resources
- Colorado Department of Revenue provides many forms, information on the latest laws and regulations, and other employer-specific information.
- Tax withholdings often trip up employees processing payroll; reviewing Colorado’s comprehensive information may help you.
- For extensive information on how to get workers’ compensation coverage, Colorado’s Department of Labor and Employment offers guidance.
Colorado payroll is fairly easy compared to some states. There are no state-specific forms or taxes; you’ll just need to stay abreast of state-specific payroll and HR laws.
One of the best ways to ensure you don’t make any mistakes or miss any steps is to use a payroll software that walks you through Colorado payroll every time. You may want to consider Gusto to help you file accurately and on time. It even pays employees with direct deposit for free and offers health insurance benefits. Sign up for its 30-day free trial.