This information will assist you when preparing for an Unemployment Insurance Audit. The FAQs will let you know what to expect during and after the audit.
- Who is considered an employee, and who is considered an independent contractor?
- The definition of employment in CESA 8-70-115 is broad and inclusive, and it is not limited to the common-law relationship of master and servant (as used by the Internal Revenue Service). If there is an employer-employee relationship, it makes no difference how the employer describes the relationship. It does not matter if the individual is called an employee, partner, co-adventurer, subcontractor, agent, contract laborer, or independent contractor. It does not matter how the payments are measured, what they are called, or whether the individual is a full-time, part-time, or temporary employee.
The two main concepts used to determine who is an independent contractor are:- The individual is free from control and direction in the performance of the service, both under the contract for the performance of service and in fact.
- The individual is customarily engaged in an independent trade, occupation, profession, or business related to the service performed.
There are several other factors that may be considered in determining if an individual is an employee or independent contractor. For help in determining if a worker is an independent contractor or employee, contact the Unemployment Insurance Employer Services, Audits unit at (303) 318-9100, and select Option 4.
- What records can be audited?
- Our auditors perform a detailed audit of all records. A complete payroll audit involves an examination of all subsidiary records, including payment records for services that were not classified as employment or wages. CESA 8-72-107 requires that all records are open for inspection so that the records may be audited and verified at any reasonable time and as often as necessary.
- Why am I being audited?
- There are 3 main types of audits.
- Random
- Focused
- Complaint, Tips, and Leads
Random audits are the majority of all audits. The U.S. Department of Labor requires the state of Colorado to audit 1% of all its employing businesses each year. The pool of employers is all employers registered with the Colorado Department of Labor &, Employment and that have a current unemployment insurance account number.Focused audits are generated by audit managers using a variety of state and federal tools and guidelines.Complaint, Tips, and Leads audits usually come from tips and leads furnished by former employees, competitors, or U.S. Department of Labor personnel.
- If I own the corporation, why do I have to pay unemployment premiums?
Officers of a corporation who perform services for the corporation are considered employees of the corporation. The I.R.S. has established that a reasonable wage should be reported. Therefore, in lieu of any wages being reported, all draws, dividends and other distributions can be reclassified to wages.
- If I am an officer or shareholder of the corporation, why do I have to pay unemployment premiums?
Officers and shareholders of a corporation who perform services for the corporation are considered employees of the corporation. The I.R.S. has established that a reasonable wage should be reported. Therefore, in lieu of any wages being reported, all draws, dividends, distributions and constructive receipt of remuneration can be reclassified to wages.
Resources
- Social Security Administration Code of Federal Regulations
- What to do when I receive a notification of audit letter?
Contact the Auditor to confirm receipt of the notification of audit. The auditor will clarify any questions or concerns regarding the audit process and/or required documents.
- Where will the audit be conducted?
CDLE UI Audits are conducted remotely by uploading documents to a secure document portal. The auditor will provide a box.com link when the audit is confirmed. An in-person audit may be requested.
- How long will the audit take?
The length of the audit will vary depending on the number of workers and the condition of business records. Many audits are completed within a week of uploading all required documents. Audits requiring extensive worker research may take a month or more to complete.
- Why is the Auditor examining the requested records?
The purpose of the audit is to verify the reported employee wages are accurate, workers are correctly classified as independent contractors or employees, all the appropriate reports have been filed, and the information associated with your UI account is correct.
- How many years will be audited?
The majority of audits cover one calendar year. The audit period may be expanded to include multiple years under specific circumstances. The Auditor will provide an explanation if an expansion is necessary.
- When can I expect to hear the audit findings?
The auditor will provide an audit report with the Division’s findings when the audit is complete. The audit report will contain all relevant findings; however, employers are encouraged to contact the auditor if questions remain or clarification is needed.
- What happens if it is determined that I owe tax, interest, and penalty?
Audit adjustments will post to MyUI+ Employer where all account balances should be paid. Contact Employer Services if a payment plan is needed.
- What if I do not agree with the audit findings?
You have the right to appeal the Audit Report decision if you do not agree. If you choose to appeal, you have 20 calendar days from the issue date on the Audit Report. Your appeal must be in writing and should list the reason(s) you disagree with the Division's findings. Appeal instructions are provided on the Liability Determination provided with the Audit Report.
- Does an appeal stop interest from accruing on the balance owed?
No, the interest will continue to accrue. However, you can opt to pay the balance in full. If you prevail at the hearing, you will be issued a refund.