Congratulations on your hiring your first employee. This is a great opportunity for your business to grow and for you to step more into the ownership role. It’s a big responsibility having employees. You have to pay them on time. They depend on you for a salary. They may have families. This is not a decision entered into lightly. There are also rules and regulations you have to follow on the state and federal levels.
The following is information you need to know about how to get set up to have employees in the State of Colorado.
MINIMUM WAGE
The minimum wage in Colorado for 2024 is $ 14.42 hour.
Step 1 – Register as an Employer
You will need to first get a Federal Employer Identification Number (FEIN) – Form SS-4 from the Internal Revenue Service (IRS) if they do not already have one. If you have been operating as a single member LLC or a Sole Proprietor, you may already have this number.
You will also need a Withholding Account Number from the Colorado Department of Revenue and Unemployment Account Number from the Colorado Department of Labor and Employment.
Step 2 – Employee Eligibility Verification
Each new employee will need to fill out the I-9 Employment Eligibility Verification Form from U.S. Citizenship and Immigration Services, to confirm citizenship and eligibility to work in the U.S. The employee must complete Section 1 by their first day of work, and the employer will complete Section 2 by the end of the third business day after the employee starts.
The I-9 form is not submitted, but by law, employers are required to keep the form on file for three years after the date of hire or one year after the employee’s termination, whichever is later.
Step 3 – Employee Withholding Allowance Certificate
Each employee will provide their employer with a signed Withholding Allowance Certificate (Form W-4) on the date of employment. The W-4 form determines how much federal income tax will be withheld from the employee’s paycheck. You do not need to submit the Form W-4 to the IRS, but you should make an employee folder and keep a copy on file.
See IRS’s Publication 15 – Employer Tax Guide for more information on federal withholding.
Step 4 – New Hire Reporting
When you hire a new employee, or re-hire a previous employee, the State of Colorado requires employers to report them within 20 days of hiring to the Colorado State Directory of New Hires.
Effective July 2021, Colorado House Bill 21-1220 requires employers to report Independent Contractors, also known as self-employed or contract employees, as new hires, if they provided their Social Security Number for tax purposes. If they provided a Federal tax ID (FEIN), you do not need to report these employees as new hires.
You will need to gather the employee’s name, address, Social Security Number, date of birth, and the employee’s start date or the first day the employee begins work.
Employer information includes Federal Employer Identification Number, employer name, address, and contact phone number. You then submit the new hire reporting form online with the Colorado State Directory of New Hires.
The new hire information is required through the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA). This information is recorded in the State Directory of New Hires and the National Directory of New Hires (NDNH) to locate parents and non-custodial parents who owe child support.
Step 5 – Payroll
You will need to determine a frequency of pay. You can set payday as weekly, starting the following Friday. Bi-Monthly, on the 1st and 15th of the month, or monthly. You can not exceed 30 days to pay an employee. Once your pay period is established, you can not change or miss a pay period without informing your employees well in advance.
When , payroll taxes will need to be paid. Payroll taxes include:
Federal Income Tax Withholding
Employers withhold money from each employee’s paycheck to pay the employee’s federal income taxes based on the information provided in their W-4. The employer does not pay any withholding tax. It is a tax that is collected by the employer and the employer remits the withheld taxes to the state or IRS.
File federal income tax withholding reports using Form W-2, Wage, and Tax Statement with the IRS. The IRS Form 941 is due quarterly, and IRS Form 940 is filed annually to report any unemployment taxes due.
State Income Tax Withholding
Similar to the federal income tax withholding, taxes are withheld from an employee’s paycheck for state income taxes.
Social Security & Medicare
Social Security and Medicare taxes are paid under the Federal Insurance Contributions Act (FICA). The employer pays half of FICA, and the other half is paid from the employee’s wages.
Unemployment Insurance
Employers pay state and federal unemployment taxes based on a percentage of each employee’s salary. This tax is known as State Unemployment Taxes (SUTA) and Federal Unemployment Taxes (FUTA).
Step 6 – Workers’ Compensation Insurance
All businesses with employees (even a single part-time employee) are required to carry workers’ compensation insurance coverage to cover medical costs if employees are injured on the job. Worker’s Compensation Insurance is administered through the Colorado Department of Labor and Employment.
Step 7 – Labor Law Posters and Required Notices
Employers are to publicly display Federal and State of Colorado labor law posters. These posters are to be publicly displayed where they can be easily viewed by employees. These posters inform employees of their rights and employer responsibilities under labor laws.
Colorado labor law posters can be individually printed from the Colorado Department of Labor’s website.
Employee v. Independent Contractor
It is important to understand the differences between employees and independent contractors. Employers will sometimes improperly classify employees as independent contractors. To know if your employee is actually an employee or an independent contractor you can file IRS Form SS-8, Determination of Employee Work Status for Purposes of Federal Employment Taxes, and Income Tax Withholding.
There is a lot to keep up with when hiring employees for your business. Your obligations and responsibilities as an employer don’t end there. Labor laws are complex and ever-changing. Be sure to keep up-to-date with the Colorado Department of Labor and Employment and the U.S. Department of Labor.
Download this FREE guide!