Understanding the Colorado Wage Claim Act

Employees must be paid in accordance with the law. The Colorado Wage Claim Act outlines how and when employers are required to pay their workers. This article explores the Colorado Wage Claim Act and what happens if you’re found to have violated it.

Colorado Employment Laws

Colorado employers must follow the federal Fair Labor Standards Act (FLSA) and the Colorado Wage Claim Act. If you’re an employer in the Centennial State, it’s important to know that state law requires that you have regular pay intervals for your workers. Colo. Rev. Stat. § 8-4-103 (2017)

Per the Colorado Wage Claim Act, employers must pay workers at least once a month or every 30 days — whichever is longer — on regularly scheduled paydays. Employers should also make sure that checks are cut, so to speak, within 10 days of the end of the pay period. Employees must also receive all of their earned wages for that pay period. Their checks cannot be shorted.

You face stiff fines if you fail to comply with the law.

Damages for Wage Claim Act Violations

If you’re an employer, it’s important to understand your worker’s obligations if there is a dispute about a paycheck. You cannot automatically be sued for failure to pay. There are steps the employee must take in order to proceed with a claim against you.

First, the employee must give you a written demand letter asking for full payment if they were not paid on time and/or for the full amount. Once you receive the written notice, you have 14 days to pay the full amount owed to the employee.

If you don’t, you’re liable for the employee’s wages and the following penalties:

(a) two times the amount of the unpaid wages or compensation or $1,000, whichever is greater

(b) for willful nonpayment, three times the amount of the unpaid wages or compensation or $3,000, whichever is greater

C.R.S. § 8-4-109 (3)(b)

Note > The same 14-day payment time frame and penalties also apply to civil actions or administrative claims that are sent to or served on the employer.

Civil Lawsuits for Employer Retaliation

Beginning in August 2023, employers can be sued if they discriminate or retaliate against an employee for filing a wage complaint. Here’s what employees can request in a lawsuit:

• • backpay
  • reinstatement of employment or front pay if reinstatement isn’t feasible
  • payment of unlawfully withheld wages
  • interest on unpaid wages (12 percent for each year from the date the wages were first due)
  • liquidated damages (twice the amount of unpaid wages or $2,000, whichever is greater)
  • reasonable attorney fees and costs
  • injunctive relief

C.R.S. § 8-4-120 (3)(a)

When Employers May Seek Attorney Fees

State law allows employers to file a civil action to recover attorney fees in some circumstances when an employee sues them for unpaid wages.

You can pursue attorney fees if you paid all of the unpaid wages in good faith within 14 days of receiving the lawsuit notice and your employee recovered less from the lawsuit than what you paid them.
C.R.S. § 8-4-110

Statute of Limitations

Under the FLSA, an action must be filed within two years after the action accrues. 29 U.S.C. § 255(a)

However, if the defendant’s alleged violation of the FLSA was “willful,” the statute of limitations is extended to three years. 

Employees Can Band Together

In Colorado, a group of employees can agree to let one of their coworkers bring a wage complaint on their behalf for The Colorado Division of Labor Standards and Statistics to investigate.

For these “group” investigations, state law limits the amount of unpaid wages or compensation that can be recovered to $7,500 per employee. C.R.S. § 8-4-111 (2)

How Colorado Defines Wages and Compensation

Wages are defined as all “earned, vested and determinable” amounts for labor or service performed by employees, regardless of the method of calculation (i.e. time, task, piece, commission, etc.) C.R.S. § 8-4-101

Some forms of “earned” compensation include bonuses, commissions, and vacation pay. Severance pay is not considered a wage for the purposes of the Colorado Wage Claim Act.

Paying an Employee After Separation

If an employee is discharged, then all “earned, vested, and determinable” wages and compensation are immediately due and payable to the employee.

If an employee voluntarily leaves the job, any unpaid wages or compensation must be made available to the employee on the next regular payday.

Vacation Pay

Vacation pay is not a right under the Colorado Wage Claim Act. However, once an employer has chosen to provide it, vacation pay has the same protection as other wages or compensation. Therefore, employers must pay out vacation pay once the employee has earned it. Nieto v. Clark’s Mkt., Inc., 2021 CO 48, ¶ 1, 488 P.3d 1140, 1141

All “earned and determinable” vacation pay must be paid at the end of the employment relationship.

Bonuses and Commission

If you terminate an employee, you have 10 calendar days to audit and adjust the accounts and property value of any items entrusted to the employee before wages or compensation are paid.

If an employee resigns, any earned and unpaid wages at that time are due upon the next regularly scheduled payday. Colo. Rev. Stat. § 8-4-104(1).

Take the 1975 case Hofer v. Polly Little Realtors, for example. The Colorado brokerage firm refused to pay a terminated realtor the commission he earned from a realty contract that was signed before he was terminated. The brokers argued that a clause in the realtors’ sales agreement stipulated that the salesperson must be employed at the time a commission payment is due to receive the payment. An Arapahoe County court disagreed, ordering the brokerage firm to pay the realtor’s commission.

Correctly Classify Your Employees

Under the Fair Labor and Standards Act, employees are classified into two categories: exempt and non-exempt. Your obligations to an employee depend on which category the employee falls under.

Exempt Employees

Exempt workers are salaried employees whose job duties fall within specific categories of work. This includes bona fide executives, administrative or computer professionals, and outside sales workers.

In Colorado, exempt employee status also extends to cover:

• property managers
• companions
• babysitters
• domestic workers
• volunteers
• supervisors
• elected officials and staff
• certain types of drivers, mechanics, students, and institutional workers

Non-Exempt Employees

Non-exempt employees receive an hourly rate for each hour they work. Under federal and state law, employers must pay hourly workers at least the minimum wage for every hour worked up to 40 hours.

Overtime Pay

Overtime pay equals one and one-half times an employee’s regular hourly rate. In Colorado, an employee must receive overtime pay for any work over:

• 40 hours per workweek
• 12 hours per workday
• 12 consecutive hours of work

Independent Contractors

Under Colorado law, a person is presumed to be an employee unless he or she is:

“free from control and direction in the performance of the service, both under the contract for performance of service and in fact and such individual is customarily engaged in an independent trade, occupation, profession, or business related to the service performed.” C.R.S. § 8-40-202 

These workers are considered independent contractors. Independent contractors are not protected by worker’s compensation and wage and hour laws. They also are not subject to payroll taxes and withholding for income taxes.

What Happens When Your Employees Are Misclassified

“Misclassification of employees” means erroneously classifying a person as an independent contractor, free from the control and direction of the employer in the performance of service for the employer. C.R.S. § 8-72-114

When an employee is misclassified, they are denied access to critical benefits and protections they are legally entitled to, such as overtime, minimum wage, family and medical leave, and — in some cases — safe workplaces.

The repercussions are not limited to the misclassified employee. Misclassification also generates substantial losses to the U.S. Treasury and the Social Security and Medicare funds. It also has a negative effect on state unemployment insurance and workers’ compensation funds.

In other words, taxpayers suffer when employees are misclassified.

Economic Realities Test

The Tenth Circuit, which includes Colorado, applies the “economic realities” or “economic dependence” test to determine whether an individual is an employee or an independent contractor under the Fair Labor Standards Act.

This test examines the following factors:

• the alleged employer’s control over the worker
• the worker’s opportunity for profit or loss
• the worker’s investment in the business
• the permanence of the working relationship
• the degree of skill required to perform the work
• the extent to which the work is an integral part of the alleged employer’s business

Judd v. Keypoint Gov’t Sols., Inc. (D. Colo. July 30, 2018)

Penalties for Employee Misclassification

In Colorado, anyone may file a written complaint with the Colorado Department of Labor alleging that an employer has misclassified a worker as an independent contractor. The appropriate parties will be notified if the CDOL determines that an investigation is needed.

If the investigation finds an employer misclassified employees, the employer must pay back all unemployment insurance premiums owed with interest.

Hefty Fines 

If the state labor department finds that an employer misclassified employees with willful disregard of the law, the employer may be fined up to $5,000 per misclassified employee for the first misclassification. Subsequent misclassifications can cost you up to $25,000 per misclassified employee.

Temporary Loss of Work

In addition to significant fines, employers with multiple misclassifications are prohibited from contracting with or receiving funds from the state of Colorado for up to two years.

A Lesson for Employers: A Colorado Misclassification Case

Judd v. Keypoint Government Solutions

In 2018, Orson Judd filed a class-action lawsuit against his former employer Keypoint Government Solutions, a Colorado-based company that conducts background checks for the federal government.

Judd, filing on behalf of himself and other Keypoint investigators, alleged that Keypoint willfully misclassified them as independent contractors to avoid paying overtime wages and benefits. However, the company had classified other investigators as employees despite performing the same basic job duties as Judd.

KeyPoint never provided the plaintiffs with overtime pay or employment benefits, despite the fact that they all regularly worked over 40 hours per week. Additionally, all investigators were required to comply with the same rules, procedures, training, and techniques dictated by KeyPoint, regardless of their classification as employees or independent contractors.

The parties eventually settled. KeyPoint agreed to pay $900,000 to the former employees, plus an additional $600,000 for their attorneys’ fees and costs.

Call a Colorado Wage Claim Act Attorney

Wage violation allegations are serious. If you’re an employer who has allegedly violated wage laws, it’s imperative to seek legal representation as soon as possible. Call 303-688-0944 to begin a case assessment.