Colorado Employers Face Changes in Vacation Pay Law

A recent seminar in September at the Division of Employment revealed the Department’s then unwritten position about “use-it-or-lose-it” vacation pay policies. Colorado wage and hour laws would no longer allow employers to continue “use-it-or-lose-it” vacation pay policies in which an employee loses their earned time if it isn’t used by a certain time.

Even though the Division didn’t officially state the changes in the law regarding vacation pay policies, in September it was expected that the Division would come out with their official statement and appeals to the Division Hearing Officer.  However, in October, it issued a Frequently Asked Questions that stated that “use-it-or-lose-it” vacation policies are allowed, but these policies may not be used to deprive employees of earned employee vacation, which still must be paid out at separation.

What the New Position Entails

Employers will still be permitted to place caps on vacation accrual, and may require employees to use earned vacation during their employment. However, if earned vacation is not used prior to separation from employment, employers must pay it upon separation.

This new Division position does not mean Colorado employers are required to provide vacation pay, but if they do have a vacation benefit, any earned vacation pay is considered wages and can’t be withheld or forfeited. The new position includes oral and written agreements and applies only to earned vacation pay under vacation benefits, not to sick leave or paid time off (PTO).

What Are the Consequences of Withholding Earned Vacation Pay Now?

Because of the passage of the Colorado Wage Theft Act, the Division can order employers to pay wages, fines and penalties for violations of payments for vacation earned on or after January 1, 2015 for claims of $7500 or less. Orders like this are enforceable court order, but vacation pay claims prior to that date are only subject to mediation.

Employees have options regardless of the amount of the claim. They can file a lawsuit instead of asking the Division to help or if they feel the Division didn’t resolve their claim satisfactorily.

What Colorado Employers Should Do

Colorado employers should review their policies, practices, and employment agreements about earned vacation pay. They should be clear and convey exact definitions of when and how vacation is earned and paid, and be careful not to create “earned” vacation time that can’t be forfeited. Any content about forfeiture of earned and determinable vacation pay should be removed from policies and procedures and payroll communications.

Multistate employers should review their vacation policy with vacation laws in other states to ensure compliance and clear communication to company employees in different locations. Unlimited vacation policies and PTO policies are alternatives to “use-it-or-lose-it” vacation policies that employers may consider to avoid compliance conflicts.

Employers can also keep an eye on the Department’s website to see when written notice is posted about the outcomes of wage and hour audits and appeals and the new position.   Contact PAYDAY to see if your vacation pay is correctly set up to be in compliance with all of the changes in the law.



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