Audits are performed by the Division of Unemployment Insurance within the Colorado Department of Labor and Employment as federally required. The requirement has been established in hopes of insuring compliance by employers as well as to provide guidance, information and help to employers. How are businesses audited by the Division of Unemployment Insurance in Colorado? This is a common question asked by business owners in Colorado, and the answer is that most of these audits are at random. The United States Department of Labor requires that all states audit one percent (1%) of all employing businesses each year. In Colorado, the “pool” to choose from is all employers that are registered or performing services within Colorado.
During the audit, the auditor will work to verify the following:
– The proper classification of all workers (independent contractor versus employee)
– The accuracy of wages being reported for workers
– The appropriate filing of reports and information
The examination includes records such as tax returns, income statements, general ledgers, bank statement and other documents. Authority is given through the Colorado Employment Security Act, in sections 8-72-107 through 8-72-110.
Often issues come about regarding the classification of workers. Many times an individual will be treated as an independent contractor when in fact they should be paid and treated as an employee. The definition of an employee or employment is broad in Colorado, and does not necessarily fall under the common law relationship that may be used by the Internal Revenue Service. In Colorado, there are two main concepts used to determine the status of a workers: 1) Is the individual free from control and direction in regards to the performance of services, when considering the contract for the performance of the services and in fact when the true circumstances are reviewed and, 2) Is the individual customarily engaged in an independent trade, occupation, profession or business related to the services the individual is performing.
An auditor will review all of the facts and circumstances during an audit such as any agreements in place, the day to day operations of the business, use of tools, how is payment made for services, advertising and the typical everyday operations and interactions within the business and the related parties. An auditor can determine that individuals are employees as opposed to independent contracts and thus look to reclassify the status or classification of a worker.
You can contact The McGuire Law Firm to speak with a tax attorney or business attorney in Denver, Colorado regarding your business and tax matters. The McGuire Law Firm allows a free consultation with a tax attorney in Denver or Golden Colorado.