Understanding the Colorado Wage Claim Act

December 8, 2021 | Bill Henry

Employees deserve to be paid in accordance with the law. The Colorado Wage Claim Act outlines how and when employers must pay their employees. This article takes a look at the Colorado Wage Claim Act and explains the options it affords to both employers and employees.

Talk With a Colorado Wage Claim Act Attorney Today

Most people are just one missed paycheck away from financial ruin. Not being paid deserved wages can have devastating consequences on an employee’s livelihood. Employers can also be held liable for wage loss, which can have similarly disastrous consequences for their businesses. No matter which side of this issue you find yourself on, our Colorado Wage Claim Act attorneys will stand with you to make it right. Call 303-688-0944 to begin your free case assessment.

Colorado Employment Laws

Employers in Colorado are required to follow both the federal Fair Labor Standards Act (FLSA) and the state Colorado Wage Claim Act. The Colorado Wage Claim Act dictates that employers must pay employees at regular intervals during their employment. It also provides adequate judicial relief in the event wages are not paid. Colo. Rev. Stat. § 8-4-103 (2017)

Per the Colorado Wage Claim Act, employers must pay employees at least once per month or 30 days — whichever is longer — on regularly scheduled paydays. Employees must be paid within 10 days of the end of the pay period.

Damages for Wage Claim Act Violations

If an employer fails to pay all earned wages, the employee may make a written demand for payment. After receiving the written demand, the employer has 14 days to pay the full amount owed to the employee.

If the employer fails to do this, they are liable for not only the wages but a penalty of either:

(a) 125 percent of the first $7,500 of wages or compensation due, plus 50 percent of any wages or compensation due in excess of $7,500, or

(b) the employee’s wages for each day, which accrues up to 10 days, “until such payment or other settlement satisfactory to the employee is made.” If the failure to pay is found to be “willful,” the penalty is increased by 50 percent.

The penalties are available only if the employee has made a written demand for payment.

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 deemed wages for the purposes of the Colorado Wage Claim Act.

Payment Upon Employment 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 leaves the job of his or her own volition, 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, you cannot forfeit your vacation pay once you have already earned it. Nieto v. Clark’s Mkt., Inc., 2021 CO 48, ¶ 1, 488 P.3d 1140, 1141

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

Bonuses and Commission

The Colorado Wage Claim Act applies only to wages and compensation that are “earned and unpaid” at the time of the employee’s discharge. C.R.S. 8-4-104(1). It does not require the payment of compensation “not yet fully earned” under the employment agreement. Lee v. Great Empire Broadcasting, Inc. quoting Section 8-4-104(2). (Colo. App. 1989)
Nevertheless, Colorado courts have held that the statute applies to payments that are due after the date of the discharge, provided those future payments have been “earned.” This means they are “vested and determinable” at the time of the employee’s termination. Lee v. Great Empire Broadcasting, Inc.

If employment is terminated, the employer has 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 as an example. A Colorado brokerage firm refused to pay a terminated realtor the commission he earned from a realty contract that was signed prior to his termination. 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 commission.

Employee Classifications

Under the Fair Labor and Standards Act, employees are classified into two categories: exempt and non-exempt. An employer’s obligations to you depend on which category you fall into.

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.

Employee Misclassification

“Misclassification of employees” means erroneously classifying a person as an independent contractor, free from 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 employers misclassify an employee.

Economic Realities Test

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

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, any person may file a written complaint with the Colorado Department of Labor alleging that an employer has misclassified a worker as an independent contractor. After a complaint is received and the CDOL determines that an investigation is needed, the appropriate parties will be notified. If the investigation finds that an employer has misclassified employees, the employer must pay all back 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 an employer 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 Colorado Employee 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.

Attorneys’ Fees

Both the employer and the employee are able to seek reasonable attorneys’ fees in wage claim cases.

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. 

Call a Colorado Wage Claim Act Attorney

A wage violation is a serious offense. Whether you’re a worker who believes a violation has occurred or 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 free case assessment with Robinson & Henry’s Wage Claim Act attorneys.

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