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November 04, 2021

Colorado Proposes Expanded Definition of Vacation Pay, New Highly Compensated Employee Exemption, Modifications to Paid Sick Time Calculations, and Other Revisions to Wage Regulations

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Key Takeaways

  • If adopted for 2022, the Wage Protection Rules would significantly expand the definition of “vacation pay” under Colorado law and affect how employers make certain calculations regarding paid sick time under the Healthy Families and Workplaces Act (HFWA).
  • Among other changes, COMPS Order #38 proposes to create an exemption from state overtime requirements for certain highly compensated employees.

The Colorado Department of Labor Division of Labor Standards and Statistics has proposed modifications to its Wage Protection Rules and has published proposed Colorado Overtime and Minimum Pay Standards (COMPS) Order #38.  If adopted for 2022, the Wage Protection Rules would significantly expand the definition of "vacation pay" under Colorado law and affect how employers make certain calculations regarding paid sick time under the Healthy Families and Workplaces Act (HFWA). Among other changes, COMPS Order #38 proposes to create an exemption from state overtime requirements for certain highly compensated employees.

Division Proposes Including PTO in Definition of "Vacation Pay," Which Cannot Be Forfeited

Employers have experienced years of uncertainty about whether accrued vacation and paid time off (PTO) may be forfeited at termination or through use-it-or-lose-it policies under Colorado law.  The Colorado Wage Act defines wages and compensation to include "[v]acation pay earned in accordance with the terms of any agreement."1 In a long-awaited decision, the Colorado Supreme Court held earlier this year in Nieto v. Clark's Market that company policies that provide for the forfeiture of earned vacation pay are unenforceable under Colorado law. 

The Nieto decision, however, does not address PTO, which is typically a combination of vacation, sick, and personal time included in one bucket.  Under PTO policies, employees generally are not required to specify which type of time off they are using.  Unlike vacation, pay for absences due to illness does not fall under Colorado's definition of wages, and there is no obligation to pay out unused paid sick time under the HFWA. The Division's current regulations do not address PTO policies, and the Division historically has not investigated employee pay complaints regarding PTO.  

The 2022 Wage Protection Rules propose to bring PTO policies within the Division's purview by significantly expanding the definition of vacation pay.  Specifically, the Division proposes to define vacation pay as:

pay for leave, regardless of its label, that is usable at the employee's discretion (other than procedural requirements such as notice and approval of particular dates), rather than leave usable only upon occurrence of a qualifying event (for example, a medical need, caretaking requirement, bereavement, or holiday).2

Since leave under employer PTO policies typically does not require any qualifying event for use, it would fall under the Division's proposed expanded definition of vacation.  If enacted, the same rules would apply to Colorado employers' PTO policies as apply under Nieto to vacation: employees could not be required to forfeit PTO either at year-end under a use-it-or-lose it policy or at separation.  Employers would have to allow all earned PTO to carry over year-to-year and pay out earned PTO at termination.  However, employers that maintain separate vacation and sick time policies would still not have to pay out unused sick time at separation and would only have to abide by the HFWA requirements for carryover.

Additionally, it appears that the proposed regulations are expansive enough that some employer-provided floating holidays also would fall within the definition of "vacation pay."  A floating holiday is typically provided in addition to other holidays as another paid day off that employees can use at their discretion, such as on their birthday or to extend an existing holiday into a long weekend.  Floating holidays traditionally do not carry over if not used and are not paid out at separation.  However, depending on the conditions an employer places on an employee's use of a floating holiday, this proposed regulation may prohibit forfeiture of an employee's floating holiday.

Proposed HFWA Regulations Complicate Regular Rate Calculations, Address Indeterminate Shifts and On-Call Work

Colorado's HFWA allows most Colorado employees to accrue paid sick time off at the rate of one hour for every 30 hours worked, up to 48 hours per year, and allows employees to carry over up to 48 hours year-to-year.  Under the HFWA, employers must compensate employees using paid sick leave at their same hourly rate or salary and with the same benefits - including health care benefits - as they normally earn during hours worked, but employers can exclude overtime, bonuses, and holiday pay from rate calculations.  However, the Division's existing rules for employees earning non-hourly pay and for fee-for-service basis employees require employers to use the formula for calculating the regular rate for overtime purposes when they calculate the sick leave rate of pay.

The proposed rules would further complicate regular rate calculations for purposes of sick pay.  They would require employers to use the methodology for calculating the regular rate for overtime purposes for all employees, except: (1) bonuses included in the overtime regular rate calculation would be excluded from the HFWA regular rate calculation; (2) for employees working two or more jobs at different rates, the "weighted average" method (discussed further below) must be used—but for a 30-day period, rather than a workweek; and (3) the HFWA regular rate would be calculated based on the employee's pay over the 30 calendar days prior to taking leave (or the longest period the employee has worked if less than 30 days) rather than on the workweek basis that is used for overtime pay.  However, for fee-for-service employees, the rate would be calculated based on the "best available, reasonable estimate" of hours worked. Thus, employers would be required to perform different, complicated regular rate calculations—using different types of pay and over different timeframes—for overtime and sick pay purposes for all employees.

The current regulations use "calendar month" and "30 days" interchangeably even though a calendar month is not always 30 days, so the proposed rules would consistently use 30 days and remove reference to calendar month.  The regulations also would clarify that for an employee who has not yet been employed for 30 days, an employer must calculate the number of hours of leave they are eligible to take based on either (1) their regular schedule of hours actually worked; or (2) if leave is during a period where the employee was anticipated to depart from a regular schedule, then the hours anticipated in that period.

The proposal adds regulations for indeterminate shifts and on-call employees.  The proposed regulations provide that if an employee uses paid leave for a shift of indeterminate length (for example, a shift that is defined by business needs rather than a previously specified number of hours), an employer may determine the number of paid leave hours used by the employee based on the number of hours actually worked by a replacement employee in the same shift or a similarly situated employee who works the same shift or who has worked a similar shift in the past.  The proposal would allow on-call workers to use paid leave during any hours they have been scheduled to work.  The new rule would clarify that being "scheduled to work" does not include shifts for which an employee has been asked to be available or on-call, unless the employee is performing work (as defined in the COMPS Order).  However, where an employer has agreed to pay an employee for an on-call shift regardless of whether the employee performs any work, the employee would be eligible to use paid sick leave during that shift.

Finally, the proposed regulations clarify that for an employer to rely on an existing policy in a collective bargaining agreement to meet paid sick time requirements, the CBA must make clear to employees, in a writing distributed in advance of an anticipated or actual leave request, that the CBA leave policy provides paid time off: (1) in at least an amount of hours and with pay sufficient to satisfy HFWA; (2) for all the same purposes covered by HFWA; and (3) under the same conditions as the HFWA, including accrual, use, payment, annual carryover, notice and documentation requirements, and anti-interference rights.  These are the same requirements the Division already imposed for an employer's use of a PTO policy to satisfy the HFWA, but the proposal clarifies that they apply equally to a CBA.

Proposed COMPS Order #38 Adds Highly Compensated Employee Exemption, Rules for Agricultural Workers, Other Clarifications  

Unlike the federal Fair Labor Standards Act (FLSA), Colorado law does not have an exemption to its pay requirements for "highly compensated employees."  Federal law exempts from overtime and minimum wage requirements employees who are paid total annual compensation of $107,432 or more (which includes at least $4,684 per week paid on a salary or fee basis), have a primary duty including performing office or non-manual work and customarily and regularly perform at least one of the exempt duties of an exempt executive, administrative, or professional employee.  COMPS Order #383 proposes to exempt from its substantive rules employees who are paid: (1) a weekly salary sufficient to meet the Colorado threshold for an exempt executive, administrative, or professional (EAP) employee ($45,000 in 2022); and (2) 2.25 times the EAP salary annually ($101,250), who meet the duties-related requirements for the highly compensated exemption under federal law.

The proposal also adds an exemption to the COMPS Order's substantive requirements for temporary employees employed directly by the National Western Stock Show Association for the annual National Western Stock Show.

COMPS Order #38 proposes that the regular rate for an employee working two or more non-exempt jobs for the same employer within the same workweek at different hourly rates be performed using the "weighted average" method unless there is an agreement in writing in advance of performing the work to use the "rate in effect method."  The weighted average is calculated by adding together all earnings for the week and dividing by the total number of hours worked at all jobs.  The rate in effect method calculates overtime based on the base hourly rate the employee is earning at the time they work overtime hours.  This proposal generally follows the FLSA, which requires use of the weighted average absent an agreement between employer and employee to use a different method—except that the FLSA does not mandate that such agreement be in writing, while proposed COMPS Order #38 does.

Proposed COMPS Order #38 contains a number of provisions implementing the Agricultural Labor Rights and Responsibilities Act regarding wage and hour protections for agricultural workers, including minimum wage, overtime and maximum hours protections, and meal and rest breaks.

The proposal contains a new exemption to Colorado's 12-hour daily overtime rule for companions designated as direct support professionals/direct care workers who are scheduled for, and work, shifts of at least 24 hours providing residential or respite services and who are employed by service providers and agencies that receive at least 75% of their total revenue from Medicaid or other governmental sources, and who provide services within Medicaid home- and community-based service waivers.

Finally, the Division proposes to move all the salary thresholds out of the COMPS Order and into a separate yearly publication, 2022 Publication and Yearly Calculation of Adjusted Labor Compensation (2022 PAY CALC) Order.  The posting requirements clarify that employers must post applicable figures from the current PAY CALC in their COMPS Order poster, and state that employers shall be deemed noncompliant if they attempt to minimize the effect of required posters or notices, such as by communicating positions contrary to, or discouraging the exercise of rights covered in, the required poster or notice.

Rulemaking Process and Public Hearing

The Division's rulemaking process is underway, with interested parties permitted to submit written comments regarding the Wage Protection Rules and proposed COMPS Order #38 until November 3. The Division will hold a hearing on both sets of proposed rules at 3 p.m. on November 1.  The Division will issue its final rules on November 10, and they will take effect on January 1, 2022.  Employers with concerns about the Division assuming jurisdiction over vacation pay, the exceedingly complex proposed regular rate calculations for paid sick time, or any other aspect of the proposed rules, are encouraged to submit written comments and to register and participate in the hearing either virtually or in person.

 


Footnotes 

1 C.R.S. § 8-4-101(14)(a)(III).

3 7 CCR 1103-1 (proposed to be effective Jan. 1, 2022), available at https://cdle.colorado.gov/sites/cdle/files/7%20CCR%201103-1%20COMPS%20Order%20PROPOSED%20Redline.pdf.

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