On September 9, 2024, the Colorado Supreme Court held that holiday incentive pay must be included in the regular rate of pay calculation for determining overtime under Colorado law. This decision marks a significant departure from federal law and will require Colorado private sector employers to re-evaluate their holiday incentive pay policies moving forward.
Background under the FLSA and COMPS Order
Federal and state overtime laws require non-exempt employees to receive an overtime premium —typically 1.5 times their “regular rate of pay”— for working more than 40 hours in a workweek (and, in Colorado, more than 12 hours in a workday or more than 12 consecutive hours). Importantly, the “regular rate of pay” includes not just an employee’s hourly wage but nearly all compensation. For example, the calculation must include shift differentials, non-discretionary bonuses, and piece-rate compensation, among others.
For many Colorado employers, an unresolved question has been whether holiday pay and holiday incentive pay need to be included in the “regular rate of pay” calculation. Consider the following two types of holiday compensation:
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Holiday Pay: Non-exempt employees are paid regular hourly wages on company holidays, regardless of whether they perform any hours worked.
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Holiday Incentive Pay: Non-exempt employees are paid a 1.5x premium for any hours worked on company holidays.
Under the Fair Labor Standards Act (FLSA), both forms of holiday pay are generally excluded from the regular rate of pay for overtime purposes. However, for Colorado employers subject to the Colorado Overtime and Minimum Pay Standards (COMPS) Order, there are greater employee protections than under federal law. Here, the COMPS Order explicitly excludes holiday pay (for time not worked) from the regular rate of pay calculation but is silent on holiday incentive pay. On September 9, the Colorado Supreme Court addressed that silence.
The Colorado Supreme Court’s Decision
In Hamilton v. Amazon.com Services LLC, 2024 CO 60, an Amazon employee argued that Amazon failed to include his holiday incentive pay in his overtime calculations. Like the holiday compensation examples above, Amazon offered two forms of bonus holiday compensation: holiday pay and holiday incentive pay. The latter category provided employees with 1.5x their regular hourly rate for working on company holidays.
The employee sued Amazon, alleging that Amazon failed to include his holiday incentive pay in overtime calculations. A federal district court sided with Amazon, ruling that the FLSA, which excludes such premiums from overtime, should apply since Colorado law was silent on the issue.
The Colorado Supreme Court disagreed with the federal district court’s decision. The Court held that holiday incentive pay must be included in the regular rate of pay under Colorado law. The Court reasoned that the COMPS Order requires “all compensation” to be included in the regular rate calculation and that holiday incentive premiums qualify as such compensation. Furthermore, the Court determined that holiday incentive premiums function as shift differentials, which the COMPS Order expressly requires to be included in overtime calculations.
Next Steps for Colorado Employers
The ruling in Hamilton is an important reminder that employers must consult federal, state, and local law when considering wage and hour compliance issues. To ensure compliance under the Hamilton opinion, employers should:
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Determine whether their business is covered by the COMPS Order. The COMPS Order generally applies to private-sector employers in Colorado. Public employers are exempt.
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Review their holiday pay policies. While holiday pay for time not worked remains excludable from regular rate calculations, holiday incentive pay must now be included for overtime pay.
If you have questions about this ruling or would like guidance on updating your policies, please contact Employers Council. We are here to support you in navigating these complex wage and hour issues.
Miller Jozwiak is an attorney for Employers Council.