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:
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.
- 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.
- 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 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.
- Complaint, Tips, and Leads
- 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.
- What to do when I receive a notification of audit letter?
Upon receipt of the notification of audit letter, please contact the Auditor to confirm your phone number, audit location, and the audit date. If, on the date scheduled, you are unable to make available the records requested, the Auditor will reschedule the audit.
- Where will the audit be conducted?
The audit will be conducted where your records are located. Normally this is at your place of business. If necessary, the audit may be conducted at your bookkeeper, attorney, or accountant's office. Also, you may bring the records to the auditor's office.
- Do I have to be present at the time of the audit?
No, the Auditor can meet with a designated representative (a Power of Attorney may be required). If you prefer the Auditor to speak directly with your representative, please contact the Auditor and provide the individual's name, address, and telephone number.
- How long will the audit take?
The length of the audit will vary, depending on the number of employees, the condition of the records, and any questions/issues that are raised. Audits are typically concluded the same day, however, the examination may take longer.
- What happens when the Auditor arrives?
Prior to examining the records, the auditor will interview you or your representative to determine the nature of the business, the type of service performed and to verify the ownership of the company. The pre-audit interview also helps the Auditor to better understand the records he/she is examining, as well as give you an opportunity to ask questions.
The records necessary for the audit will be listed in the Notification of Audit Letter. The Division understands that not all employers maintain all of the records listed, but please have available those records maintained.
- Why is the Auditor examining the requested records?
The purpose of the audit is to verify the wages reported for your workers are accurate, to verify you have filed all the appropriate reports, and to verify that the information associated with your UI account is correct.
- How many years will be audited?
Typically the audit will cover one calendar year, however, the timeframe may be expanded based on the audit findings. If an expansion is necessary, the Auditor will provide an explanation.
- When can I expect to hear the audit findings?
There will be a post-audit interview as soon as the audit is completed. At the post-audit interview, you will be given an Audit Report. The Auditor will explain the audit results. If the audit is not concluded before leaving your place of business, the Auditor will contact you at a later date to discuss the findings.
- What happens if it is determined that I owe tax, interest, and penalty?
At your discretion, payment can be submitted to the Auditor at the time the audit is concluded. However, if you are unable to pay immediately, a payment plan can be arranged.
- What if I do not agree with the audit findings?
If you do not agree with the changes, you have the right to appeal the audit findings upon receipt of the Liability of Determination. If you choose to appeal, you have 20 calendar days from the Date Mailed on the Liability Determination. Your appeal must be in writing and should list the reason(s) you disagree with the Division's findings. To appeal, follow the instructions under Appeal Rights on the Liability Determination.
- 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.