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. The 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 paid family leave 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 sick leave recordkeeping rule that changed on February 1.

The result is a state where the withholding calculation is trivial and everything around it is not. A Denver employer with 15 people is filing with the Department of Revenue, the Department of Labor and Employment, the paid leave program, and the City and County of Denver, on four different schedules, and tracking three separate minimum wages if anyone works in Boulder or Edgewater.

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

What Colorado requires from employers

Five obligations sit on top of federal payroll, each with a separate registration and its own filing rhythm.

State income tax withholding

The rate is a flat 4.40 percent on taxable income, made permanent by Proposition 121, 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 complete one only to fine-tune withholding when they expect state tax credits, earn most of their income from a single job, or have significant income from other sources. Without it, the employer simply uses the federal W-4 and the standard deduction implied by Step 1(c).

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 crosses roughly $66,000 in annual Colorado withholding, 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. A return is required 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 that began at $13,100 in 2019. From here the base indexes to the state average weekly wage rather than 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. New employers pay an introductory rate assigned by industry, built from those same three components. Liability starts at $1,500 in wages in a calendar quarter, or one employee for any part of a day in 20 different weeks.

FAMLI paid family and medical leave

Colorado's paid family and medical leave program is funded by a payroll premium that dropped for 2026. Senate Bill 25-144 reduced it from 0.90 to 0.88 percent of wages and added up to 12 weeks of leave for a parent whose newborn is receiving inpatient NICU care.

Premiums apply to wages up to the federal Social Security cap, which the Colorado FAMLI Division confirms is $184,500 for 2026. Vendor pages still showing $176,100 are quoting the 2025 figure, and pages showing 0.90 percent are a year out of date.

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 0.88 percent on those three. Headcount is confirmed once a year in the first quarter, and an employer who misses the deadline is billed at the full rate by default.

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. Rules adopted alongside COMPS Order 40 require contemporaneous per-employee records of sick leave hours accrued, used, and available, alongside vacation and paid time off hours where those are tracked, retained and produced to employees on request. The same rulemaking clarified that sick leave is paid at the employee's regular rate, which pulls in nondiscretionary bonuses, commissions, and shift differentials where applicable. Our guide to paid sick leave laws by state covers how Colorado compares.

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. Our guide to new hire reporting covers what each report must contain.

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 employer portion is owed for unpaid workers in the company as well, and self-employed people doing business in Denver owe the employer side for each active month. Where an employee works in two occupational privilege tax cities in the same month, the tax generally follows the city where more hours were worked. Published Glendale and Sheridan figures vary across third-party sources, so confirm both with the city directly rather than trusting a vendor summary.

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. The state rate rose to $15.16 on January 1, 2026, breaking $15 for the first time.

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

One plan at $49 per month plus $6 per employee, with every feature included and no tiers to climb. 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

The most 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 following a base increase in March 2026.

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. Colorado has a high share of remote and hybrid teams, so model the Plus number if a second state is even plausible within the next year.

Patriot Software

The cheapest legitimate full-service payroll available. Full Service is $37 per month plus $5 per employee and includes federal, state, and local tax filing plus new hire reporting. 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

Owned by Paychex and aimed at very small employers and household employers. Full Service 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

Formerly QuickBooks Payroll, now renamed. Core is $50 per month plus $6.50 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 has the deepest tax compliance engine in the category. For a Colorado employer the practical argument is jurisdictional: mid-year rule changes like the February 2026 sick leave recordkeeping requirements and the annual FAMLI rate reset reach ADP's tables without anyone at your company tracking the state register.

The cost is opacity. ADP does not publish RUN pricing; third-party estimates put Essential near $79 per month plus $4 per employee, but every quote is individual. Contracts typically run a year with automatic renewal and a 30 to 60 day cancellation window.

Paychex Flex

Paychex competes with ADP on the same terms: a service relationship rather than a software subscription, with a named contact at higher tiers. Pricing is quote-only, and quarterly administrative charges appear regularly in customer reports. 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, 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. The core platform is $35 per month plus $8 per employee, with payroll as a separate module. Real-world all-in costs land between $25 and $45 per employee per month once you assemble a working configuration.

Justworks

Two products under one name. Payroll is $50 per month plus $8 per employee and is straightforward software. PEO Basic at $79 per employee per month 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. Colorado is worth modeling carefully on that last column: the state has one of the higher shares of remote and hybrid work in the country, and a single hire across a state line changes which provider wins.

Two patterns stand out. Patriot stays cheapest at every headcount, and at 50 employees it costs less than several competitors do at 25. 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 roughly $100 a month in employer-side occupational privilege tax and FAMLI premiums 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.

One item sits outside the payroll engine entirely. Every Colorado new hire needs a federal I-9 and W-4, an optional DR 0004 the employee has to actively be offered rather than handed by default, direct deposit authorization, and a new hire report filed within 20 days. Our guide to tax forms for new employees covers the federal side of that document set, and the Colorado HR compliance guide covers the surrounding employment law.

Before you choose

FirstHR does not process payroll, file payroll taxes, or administer benefits. Every provider above does something we do not, and 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, e-signatures on I-9s and offer letters, employee records, and document management for 5 to 50 employee US teams at a flat $98 to $198 per month. If the recurring problem is that the DR 0004 never got offered, the direct deposit form is unsigned, 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. TABOR surplus mechanics can temporarily reduce the effective rate a taxpayer owes on a return, and a figure near 4.36 percent has circulated for 2025 filings, but 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 for 2026?

$30,600 per employee, up from $27,200 in 2025 and completing the schedule set by Senate Bill 20-207. 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 in 2026?

0.88 percent of wages up to $184,500, split evenly 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 confirmed annually in the first quarter.

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 above $500 in monthly earnings there. Greenwood Village charges $2.00 from each side at a $250 threshold, and Sheridan charges $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 above $50,000. Weekly filers remit by electronic funds transfer within three business days of the period close, which satisfies both payment and filing. Returns use Form DR 1094 and are required even for periods with no withholding.

What sick leave records do Colorado employers have to keep in 2026?

Since February 1, 2026, contemporaneous per-employee records of sick leave hours accrued, used, and available, plus vacation and paid time off hours where tracked, retained and produced to employees on request. Sick leave is paid at the regular rate, including nondiscretionary bonuses, commissions, and shift differentials where applicable.

What is the Colorado minimum wage in 2026?

$15.16 per hour statewide with a $12.14 tipped cash wage, adjusting each January 1 for inflation. Denver is $19.29 with a $16.27 tipped rate, Edgewater is $18.17, and Boulder plus Boulder County are $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 July 2026 rates run roughly $87 for Patriot Full Service, $99 for SurePayroll, $109 for OnPay or Gusto Simple, $115 for QuickBooks Core, and $130 for Justworks Payroll. At 50 employees the same plans land between $287 and $450. See the payroll pricing guide for how these models compare in general.