The Colorado Department of Labor and Employment (CDLE) recently provided guidance for Colorado employers on two important issues: payment of vacation and paid time off (PTO) to employees upon separation from employment, and deductions from pay. While these documents are not binding, they represent the CDLEs interpretation of Colorado law and therefore provide helpful guidance to employers.

Vacation, PTO, Floating Holidays, and More. In Nieto v. Clark’s Market, Inc., 2021 CO 48, the Colorado Supreme Court held that employers must pay employees all accrued but unused vacation pay upon separation from employment. Unfortunately, that decision left open some questions for employers, which CDLE addresses in INFO #14, including:

  • What counts as vacation pay? Basically, any leave that can be used at the employee’s discretion, such as paid time off (PTO), annual leave, personal days, floating holidays, etc. The CDLE explains that “vacation pay” includes any paid leave for which there is no qualifying event. Leave that is based on a qualifying event, such as health needs, a designated public holiday, caretaking, or bereavement, is not considered vacation pay.
  • Does that mean PTO, annual days, etc. must be paid upon separation from employment? Yes, according to the CDLE. If the paid leave can be used without a qualifying event, then any accrued but unused paid time off must be paid upon separation from employment.
  • What about a “floating holiday” that can be used for any holiday the employee celebrates? That is not vacation pay, according to the CDLE, because it is tied to a specific qualifying event, e., a holiday the employee celebrates. However a “floating holiday” that can be used completely at the employee’s discretion is vacation pay.
  • If we do not have a written policy, do we still have to pay accrued but unused vacation upon separation? Yes, if you have a practice of providing vacation or paid time off, it does not matter whether the policy is written.
  • What about “unlimited vacation” – do we need to pay anything upon separation? No, but the CDLE notes that if the company caps the time off or otherwise does not allow for “unlimited” vacation, then you likely would have to pay any unused vacation upon separation.
  • Are use-it-or-lose-it policies permissible? No, according to the CDLE. Once employees earn vacation pay (regardless of the name used for such pay), they cannot forfeit such pay. Capping the amount of earned vacation or PTO that rolls over from year to year would amount to a forfeiture. The Colorado Supreme Court did not address this question in Nieto, but the CDLE’s guidance appears to be consistent with the reasoning in Nieto.
  • Can we cap the amount of vacation pay employees earn? Employers may set a maximum cap at which accrual stops, until such time as the employee falls below that cap.

Deductions from pay and credits. In INFO #16, the CDLE provides guidance for when employers can deduct amounts from employees’ pay, and/or take credits against such pay, e.g., tip credits. The guidance addresses a number of important points, including:

  • Employers cannot deduct from pay if it would take the employee’s wages below minimum wage.
  • An employer must have a written agreement in place before making a deduction for certain things, such as loans, advances, goods, services, equity, or property. The “agreement” can be a simple email from the employee authorizing the deduction.
  • Companies may deduct for a shortage due to an employee’s theft, but only if the company filed a police report.
  • Deductions are permitted for an employee’s failure to return money or property upon separation, but the amount of the deduction is limited to the value of the money or property, g., if an employee fails to return keys, requiring the employer to re-key the locks, the employer is entitled to deduct only the value of the keys – it cannot deduct the cost to re-key the locks.

The CDLE also noted that employers cannot shift business expenses primarily for the employer’s benefit or convenience – e.g., tools and bills not paid by customers or clients – to the employee. Finally, the CDLE identified the three allowable credits an employer may take towards the minimum wage: (1) lodging credits, (2) meal credits, and (3) tip credits.

It remains to be seen whether courts will adopt the CDLE’s interpretations outlined above. That being said, it is worth reviewing your policies and procedures to determine whether they comply with the CDLE’s positions on paid time off and deductions from pay.