Colorado has various rules regarding the payout of paid time off, whether for sick leave under the Colorado Healthy Families and Workplaces Act (HFWA) or for vacation. It’s important to ensure you are paying at the required rate, or you could find yourself with a wage claim.
Healthy Families and Workplaces Act Compensation
Under the HFWA, all employees working in Colorado are entitled to paid sick leave of up to 48 hours a year. This paid sick leave must be compensated at the same hourly rate or salary and with the same benefits, including health care benefits, as the employee normally earns during work hours. The pay rate does not include overtime, bonuses, or holiday pay.
The Colorado Wage Protection rules provide additional guidance regarding the pay rate used to compensate employees for sick leave under HFWA. Specifically, the rules state that the pay rate is calculated based on the employee’s pay over the 30 calendar days (or the employer may choose any full pay period, or consecutive full pay periods or work weeks, totaling 28 or 31 days) prior to taking leave. The pay rate under HFWA includes all set hourly and salary rates, shift differentials, tip credits, and commissions.
If you have shift differentials, tip credits, or commissions, you need to ensure you are incorporating those into the pay rate used to compensate sick leave taken under HFWA. Failure to do so could result in a wage claim with corresponding back pay owed, fees, penalties, and interest for failing to pay out the HFWA sick leave at the correct rate.
Vacation Time Payouts
The Colorado Wage Act states that if an employer provides vacation pay, it must pay out all vacation pay upon separation that is earned and determinable in accordance with the terms of any agreement between the employer and the employee. Therefore, the rate of pay used for paying out vacation time is based on the terms of any agreement between the employer and the employee. A company’s vacation policy qualifies as such an agreement.
However, if the terms of the agreement are silent regarding the pay rate that is used to pay out the vacation time, then the Colorado Department of Labor and Employment’s (CDLE’s) Interpretive Notice & Formal Opinion (INFO) #3E provides guidance on the rate that should be used. INFO #3E states that the payout for vacation time to a departing employee should be at the employee’s regular rate of pay as defined in the COMPS Order. The regular rate includes set hourly rates, shift differentials, tip credits, non-discretionary bonuses, production bonuses, and commissions.
Combined PTO Policies
For organizations with a combined PTO policy that includes vacation and sick leave under HFWA, it is important to ensure you are paying out the paid time off at the correct rate. If your policy states that payout will be at the employee’s base rate, you may be in violation of HFWA if that employee is paid a shift differential, tip credits, or commissions. Additionally, HFWA requires you to take into account the pay the employee earned for the past 30 days prior to taking leave to calculate the rate of pay for the sick leave under HFWA.
The potential pay rate difference is a reason it is important that your organization keeps records required under HFWA of the type of leave an employee is taking to ensure you are paying out at the correct rate. Please see Employer Council’s HFWA Whitepaper for more information. If you have questions regarding the pay rates you are using for your vacation and sick leave policies or your combined policy, please reach out to Employers Council for guidance.
Hannah Nelson is an attorney for Employers Council.