Colorado Payroll: Employer Tax and Software Guide

Colorado has one of the simplest income tax structures in the country and one of the more complicated payrolls. If another founder told me they were about to hire in Colorado, I would tell them to map every registration and filing before the first payroll run.

This guide covers what Colorado requires from employers as of October 2026, the local obligations that state registration does not cover, and how 10 payroll providers price the work at 10, 25, and 50 employees, where they publish a price.

Colorado's income tax rate is a flat 4.40 percent with no brackets and no local income tax anywhere in the state, which sounds like a short setup. Then you add a Family and Medical Leave Insurance (FAMLI) premium with its own headcount rules, an unemployment wage base that jumped 12.5 percent in January, four cities that charge a flat-dollar tax per employee per month, and a recordkeeping rule for vacation and sick leave hours that changed on February 1.

The result is a state where the withholding calculation is trivial and everything around it is not. A single-location Denver employer files with the Department of Revenue, the Department of Labor and Employment, the FAMLI program, and the City and County of Denver, on separate schedules. If anyone works in Boulder or Edgewater, it also tracks those local minimum wages.

What Colorado requires from employers

On top of federal payroll, Colorado adds six obligations of its own: income tax withholding, unemployment premiums, FAMLI premiums, paid sick leave, payday and final paycheck rules, and new hire reporting. Withholding, unemployment, and FAMLI each need their own account and their own filings.

State income tax withholding

The rate is a flat 4.40 percent on taxable income, the statutory rate for every tax year since 2022, and no Colorado city or county levies an income tax on top of it. Withholding is calculated using the method prescribed in the Colorado Withholding Worksheet for Employers, Form DR 1098, applied to the employee's federal Form W-4 or to a Form DR 0004 where one has been submitted.

The DR 0004 is where Colorado differs from most states, and the difference runs opposite to what employers expect. It is the Colorado Employee Withholding Certificate, and according to the Colorado Department of Revenue it is optional.

Employees fill out a DR 0004 to fine-tune withholding, for example when they expect to claim federal itemized deductions or the Colorado child tax credit, earn most of their income from a single job, or have significant income from other sources. Without one, the employer simply uses the federal W-4, applying the allowance for the filing status checked in its Step 1(c): $11,000 for married filing jointly, $5,500 otherwise.

Which wages are subject to Colorado withholding

Colorado wages are wages paid to a Colorado resident, wherever that person works, plus wages paid to a nonresident for services physically performed in Colorado. The company address does not enter into it, which surprises employers who register here and assume everyone on the payroll is covered.

Two carve-outs matter for distributed teams. A Colorado resident who performs services in another state that imposes its own withholding on those wages falls outside the Colorado requirement for that pay. A nonresident's pay for work performed outside Colorado falls outside it as well, whatever the employer's location, which is the rule governing a Denver company's remote staff in other states.

A nonresident who works both inside and outside the state during one pay period has those wages apportioned. The share subject to Colorado withholding is the days worked in Colorado over the total days worked in that period. The resident and nonresident tests both come from the Colorado Wage Withholding Tax Guide, revised January 2026.

How a Colorado paycheck is actually calculated

Three Colorado items come out of an employee's pay: state withholding at 4.40 percent, the FAMLI employee share of 0.43 percent from January 1, 2027 (0.44 percent in 2026), and, for anyone working in one of the four occupational privilege tax cities, a flat monthly dollar amount. The rest of the tax withholding is federal.

The order is fixed. Start with gross wages for the period and subtract pre-tax deductions. Apply federal withholding from the W-4, then Social Security and Medicare. Colorado withholding comes next, calculated with the Form DR 1098 method rather than by multiplying gross pay by the flat rate.

After that, take the FAMLI share, 0.43 percent of wages up to $192,300 in 2027 (0.44 percent up to $184,500 in 2026), then the occupational privilege tax for the city where the work was performed. In Denver that is $5.75 in any month the employee earns $500 there. What is left is net pay.

The employer side of the same paycheck is the number to budget from. Add unemployment premiums on wages below the $30,600 base, the matching 0.43 percent FAMLI share from 2027 (0.44 percent in 2026) once you have 10 or more people, the employer occupational privilege tax, and workers compensation premiums.

Deposit schedules and returns

The Department of Revenue assigns filing frequency from annual withholding liability, and the top tier arrives sooner than most small employers expect.

A company with 25 people averaging $60,000 runs roughly $54,000 to $60,000 in annual Colorado withholding once the DR 1098 allowance comes off each salary, which puts it in the weekly tier.

Weekly filers must remit by electronic funds transfer, and that electronic submission satisfies both the payment and the filing obligation in one step. Monthly and quarterly filers, unlike weekly ones, still file a return for every period, even when no tax was withheld.

Unemployment insurance premiums

Unemployment insurance is an employer-only cost in Colorado. According to the Colorado Department of Labor and Employment, the chargeable wage base rose to $30,600 for 2026 from $27,200 in 2025, completing the schedule set by Senate Bill 20-207, which started at $13,600 in 2021. From 2027 the base adjusts each year with the change in average weekly earnings rather than following a fixed table.

A solvency surcharge remains in effect for 2026. The trust fund reserve ratio came in at 0.649 percent as of June 30, 2025, below the 0.7 percent threshold that would switch the surcharge off, so it applies on top of every employer's base rate and support rate.

Liability starts once you pay $1,500 in wages in a calendar quarter, or employ one person for any part of a day in 20 different weeks. New employers pay an introductory rate assigned by industry, built from the same base rate, support rate, and solvency surcharge.

FAMLI paid family and medical leave

Colorado's paid family and medical leave program is funded by a payroll premium that falls to 0.86 percent of wages on January 1, 2027 (0.88 percent in 2026). Senate Bill 25-144 cut it from 0.90 to 0.88 percent for 2026 and added up to 12 weeks of leave for a parent whose newborn is receiving inpatient care in a neonatal intensive care unit (NICU). The 2027 rate, announced on October 6, 2026, is the first the FAMLI Division has set administratively, and the Division now sets the rate by rule each year.

Premiums apply to wages up to the federal Social Security cap, which the Social Security Administration has set at $192,300 for 2027 ($184,500 for 2026, the figure the Colorado FAMLI Division confirms). Vendor pages still showing 0.90 percent or a $176,100 cap are quoting 2025 figures.

The headcount rule is the part small employers get wrong. The count includes everyone on payroll for 20 or more calendar workweeks in the previous year, including remote workers in other states and seasonal staff, even though premiums are owed only on Colorado wages. A 12-person company with three people in Colorado and nine elsewhere owes the full premium on those three: 0.86 percent from January 1, 2027 (0.88 percent in 2026).

You update your headcount once a year, by February 28. If you miss that deadline, the FAMLI Division treats you as having 10 or more employees, so the full rate applies.

Paid sick leave and the new recordkeeping standard

The Healthy Families and Workplaces Act covers every Colorado employer with no size exemption. Employees accrue one hour of paid sick leave per 30 hours worked, capped at 48 hours a year, with up to 48 hours carried over, and there is no waiting period before use.

What changed on February 1, 2026 is documentation. COMPS Order 40, the Colorado Overtime and Minimum Pay Standards order, now requires a record for each employee of vacation and paid time off hours accrued, used, and available in the current benefit year, plus sick leave hours where those are tracked separately. Employees can ask for that information.

The 2026 Wage Protection Rules also clarified how sick leave is paid: at the rate the employee would have earned for those hours, including any shift differentials, but without overtime premiums or bonuses, and without commissions when the employee also earns a wage.

Paydays, pay statements, and final paychecks

Paycheck timing in Colorado comes from the Colorado Wage Act rather than the tax code, and it is more prescriptive than the federal baseline. Pay periods run no longer than one calendar month or 30 days, whichever is longer, and the regular payday lands no later than 10 days after the pay period closes.

Post the paydays and the place of payment where employees can see them. Every pay period, each person gets an itemized earnings statement showing the employee's and employer's names, the pay period dates, total hours worked, credits and tips claimed, the regular rate, gross wages, withholdings, and net pay. Keep those records for at least three years after the wages came due.

Final pay depends on who ended the job. According to the Colorado Department of Labor and Employment, an employee who is fired or laid off is owed every earned wage immediately, while someone who quits is paid on the next regular payday.

Two exceptions soften that immediate deadline. If the office that handles payroll is not scheduled to be open, wages must reach the employee within six hours of the start of its next regular workday, or within 24 hours of that start when payroll is handled off-site. An employer may also take 10 days to audit returned company property before releasing a final check.

Registration and new hire reporting

MyBizColorado opens both the wage withholding account with the Department of Revenue and the unemployment insurance account with the Department of Labor and Employment in a single application. FAMLI registration happens separately in the state employer portal. Workers compensation coverage is required from the first employee.

New hires, rehires, and independent contractors are reported to the Colorado State Directory of New Hires within 20 days of hire, with electronic filers submitting twice monthly, 12 to 16 days apart.

The local layer that state registration does not cover

Colorado has no local income tax, which leads a lot of employers to assume there is nothing municipal to handle. Two separate local systems say otherwise, and neither is covered by the state registrations above.

Occupational privilege tax in four cities

Four metro municipalities charge a flat monthly tax on each person who physically performs work inside city limits, split between employee and employer. It is small money and a real filing obligation: each city requires its own registration and its own return.

Denver is the one most employers encounter, and its version reaches further than people expect: the $4.00 employer portion is also owed for every owner or partner doing business in Denver, even one earning less than $500 there, so a self-employed owner pays it too.

For an employee who works in two occupational privilege tax cities in the same month, Greenwood Village's rule sends the tax to the city where the employee worked the most, and only the primary employer withholds it.

Three minimum wages in one metro area

Colorado repealed its ban on local minimum wage ordinances in 2019, and four jurisdictions have since adopted their own. According to the Colorado Division of Labor Standards and Statistics, the state rate rises to $15.71 on January 1, 2027, after crossing $15 for the first time at $15.16 in 2026.

10 payroll providers for Colorado employers compared

Every provider below files Colorado withholding and unemployment premiums. The differences that matter here are whether the platform files occupational privilege tax for the metro cities, how it handles the FAMLI headcount rule, and whether the price is published at all.

OnPay

OnPay sells one payroll plan at $49 per month plus $6 per employee, with no tiers to climb; HR tools and time tracking are paid add-ons. Tax filing covers all 50 states with no multi-state surcharge, and year-end W-2 and 1099 filing sits in the base price rather than being billed separately.

OnPay also publishes detailed Colorado occupational privilege tax documentation, which is a reasonable proxy for whether a provider actually handles the metro city filings rather than leaving them to you.

Gusto

Gusto is a common first payroll purchase for US small businesses. Tax filing is automatic, the interface is pleasant, and pricing is published. Simple runs $49 per month plus $6 per employee, after a base increase from $40 during 2025.

The catch for Colorado employers is that Simple covers single-state payroll only. A hire in Wyoming, Utah, or New Mexico moves you to Plus at $80 plus $12 per employee. If remote or hybrid hiring makes a second state even plausible within the next year, model the Plus number.

Patriot Software

Patriot is the cheapest full-service option on this page at every headcount modeled below. Full Service is $37 per month plus $5 per employee and files federal, state, and local taxes, though new hire reports stay with you. Basic is $17 plus $4 if you file taxes yourself, which for a Colorado employer on a weekly filing schedule means roughly 52 electronic funds transfers a year done by hand.

Additional state filings cost $12 per month each. Patriot maintains its own documentation on Colorado occupational privilege tax and FAMLI setup, including the headcount question that determines whether you owe the employer share.

SurePayroll

SurePayroll is owned by Paychex and aimed at very small employers and household employers. Its Small Business plan is $29 per month plus $7 per employee, with a flat $9.99 monthly multi-state fee regardless of how many states are involved. For a Colorado business with a few people across the Wyoming or Utah line, that flat structure beats per-state pricing.

QuickBooks Workforce Payroll

Workforce Payroll is the former QuickBooks Payroll Core, renamed in May 2026, and it costs $50 per month plus $7 per employee. The reason to pick it has always been the same: if your books already live in QuickBooks Online, payroll entries reach the general ledger without an export step. Per-employee pricing rose across all tiers on July 1, 2026.

ADP RUN

ADP processes payroll for roughly one in six American workers, and every RUN package calculates, files, deposits, and reconciles payroll taxes, with ADP paying the resulting fines if it makes a filing error. For a Colorado employer that covers changes such as the annual FAMLI rate reset, which reach ADP's tables without anyone at your company tracking the state register.

The cost is opacity. ADP publishes no price for any RUN package, from Essential and Enhanced to Complete and HR Pro, so every quote is individual. Essential files payroll taxes, while management of the state unemployment insurance account, including rate audits and agency correspondence, starts on Enhanced.

Paychex Flex

Paychex competes with ADP on the same terms: a service relationship rather than a software subscription, with a payroll specialist included on the Complete package. Pricing is quote-only across the Basic, Foundations, Advanced, and Complete packages, and the standard service agreement can be ended on 30 days' notice. It is worth a quote if you would rather call a person about a Glendale occupational privilege tax registration than read a city ordinance.

Paylocity

Paylocity sits between small-business payroll and full HCM (human capital management), aimed at companies that have outgrown basic payroll but do not want enterprise complexity. It publishes detailed per-state tax facts including Colorado, and the HR module covers performance, learning, and engagement alongside payroll. Pricing is quote-based, and implementation is a project rather than a signup.

Rippling

Rippling sells a unified employee record where payroll, HR, and IT provisioning share one data model. Its pricing page is a quote form, but Rippling's own blog puts the core HRIS (human resources information system) module at $8 per employee per month plus a base fee, with domestic payroll a separate module at $8 per employee billed annually or $10 monthly.

Rippling's blog also estimates roughly $15 to $25 per employee per month for a 100-person company running HRIS, payroll, benefits administration, and time and attendance.

Justworks

Justworks sells two products under one name. Payroll is $50 per month plus $8 per employee and is straightforward software. PEO Basic, its professional employer organization plan, costs $79 per employee per month and is a co-employment arrangement giving a small Colorado business access to benefits priced off a much larger risk pool, which is the actual reason most companies buy it.

What each provider actually costs a Colorado employer

The table below models published rates at three headcounts, plus what happens when a second state enters the picture. Model that last column carefully in Colorado, because a single remote hire across a state line changes which provider wins.

Two patterns stand out. Patriot stays cheapest at every headcount, and its lead widens as the team grows: at 25 employees it costs $162, against $199 to $250 for the other published plans. But the second-state column reorders things: Gusto Simple is competitive until one out-of-state hire forces the Plus tier, at which point a 25-person payroll goes from $199 to $380 per month.

Software price is also not the whole Colorado number. A 25-person Denver employer pays $100 a month in employer occupational privilege tax alone, and at a $60,000 average salary the employer's 0.43 percent FAMLI share adds about $540 a month from 2027 (about $550 at 0.44 percent in 2026), all before touching the subscription. Those are statutory costs no provider changes, but they belong in the budget alongside the software line.

Choosing a payroll provider for Colorado

Four questions separate providers that will work here from providers that will quietly generate correction notices.

New-hire paperwork sits outside the payroll engine entirely. Every Colorado new hire needs a federal I-9 and W-4, an optional DR 0004 that you must provide to anyone who asks about adjusting Colorado withholding, direct deposit authorization, and a new hire report filed within 20 days.

Before you choose

FirstHR is an onboarding and HR platform, not a payroll provider.

The providers above process payroll and file payroll taxes, and most add benefits administration, so if running payroll is the problem in front of you, one of them is the answer.

What we handle is the layer that feeds payroll: onboarding workflows that put the I-9 and W-4 on each new hire's first-day task list, e-signatures on offer letters, employee records, and document management for US small businesses at a flat $98 a month for up to 10 people or $198 for 11 to 50.

If the recurring problem is that the DR 0004 never reached the employee who asked for it, the direct deposit form never came back, and nobody is sure whether the 20-day new hire report went out, that is a document collection failure rather than a payroll processing failure, and it is the kind of gap we built for.

Frequently Asked Questions

What is the Colorado income tax rate for payroll withholding?

A flat 4.40 percent, with no brackets and no local income tax anywhere in the state. In surplus years, the Taxpayer's Bill of Rights (TABOR) can temporarily lower the rate a taxpayer owes on a return. According to the Colorado Department of Revenue, that happened for 2024, at 4.25 percent. The rate was back at 4.40 percent for 2025, and employer withholding for 2026 uses 4.40 percent, calculated per Form DR 1098.

Is Colorado Form DR 0004 required for new employees?

No. It is optional, and without one the employer calculates Colorado withholding from the federal W-4. Since January 1, 2022, however, any additional Colorado withholding must be requested on a DR 0004; extra withholding entered on a federal W-4 applies only to federal tax.

What is the Colorado unemployment insurance wage base?

$30,600 per employee for 2026, up from $27,200 in 2025 and completing the schedule set by Senate Bill 20-207; from 2027 it moves with average weekly earnings. Premiums are employer-paid. A solvency surcharge remains in effect for 2026 because the 2025 reserve ratio was 0.649 percent, below the 0.7 percent threshold. New employers pay an industry-based introductory rate.

How much are Colorado FAMLI premiums?

From January 1, 2027, 0.86 percent of wages up to $192,300, split evenly at 0.43 percent each (in 2026, 0.88 percent up to $184,500, at 0.44 percent each). Employers with nine or fewer employees are not required to pay the employer share. Headcount counts everyone on payroll for 20 or more workweeks in the prior year, including out-of-state staff, and must be updated by February 28 each year.

Which Colorado cities charge an occupational privilege tax?

Denver, Glendale, Greenwood Village, and Sheridan. Denver charges $5.75 monthly from the employee and $4.00 from the employer when monthly earnings there reach $500. Greenwood Village charges $2.00 from each side at a $250 threshold, Glendale $5.00 from each side above $750, and Sheridan $3.00 from each side. Aurora repealed its version effective January 1, 2025.

How often does a Colorado employer file withholding returns?

Quarterly under $7,000 of annual withholding, monthly from $7,000 to $50,000, and weekly at $50,000 or more. Weekly filers remit by electronic funds transfer by the third business day after the Friday that closes the week, which satisfies both payment and filing. Returns use Form DR 1094, and monthly and quarterly filers must file one even for periods with no withholding.

What sick leave records do Colorado employers have to keep?

Since February 1, 2026, you must keep a record of each employee's vacation and paid time off balance for the current benefit year (hours accrued, used, and still available), plus any sick leave hours you track separately, and provide it to the employee on request. Sick leave is paid at the rate the employee would have earned, shift differentials included, while overtime premiums and nondiscretionary bonuses stay out, as do commissions paid on top of a wage.

What is the Colorado minimum wage?

$15.71 per hour statewide from January 1, 2027 ($15.16 in 2026), with a $12.69 tipped cash wage ($12.14 in 2026), adjusting each January 1 for inflation. From that date Denver and Edgewater are $19.84 and the City of Boulder $18.17; in 2026 Denver is $19.29, Edgewater $18.17, and Boulder and Boulder County $16.82. The highest applicable rate governs, and it follows where the work is performed.

How do I register a business for Colorado payroll taxes?

MyBizColorado opens the withholding account with the Department of Revenue and the unemployment account with the Department of Labor and Employment in one application. FAMLI requires separate registration in the state employer portal, each occupational privilege tax city requires its own, and workers compensation is required from the first employee.

How much does payroll software cost for a Colorado small business?

At 10 employees, published October 2026 rates run roughly $87 for Patriot Full Service, $99 for SurePayroll, $109 for OnPay or Gusto Simple, $120 for QuickBooks Workforce Payroll, and $130 for Justworks Payroll. At 50 employees the same plans land between $287 and $450.