The Colorado Department of Labor and Employment has issued Interpretive Notice & Formal Opinion #14 outlining that Colorado employers who offer paid vacation must pay their employees earned vacation upon separation, regardless of the reason for separation. This INFO #14 follows the Colorado Supreme Court’s 2021 decision in Nieto v. Clark’s Market, which confirmed that earned vacation pay cannot be forfeited at the end of employment under the Colorado Wage Act even by agreement.
Under the Colorado Wage Act, “vacation pay” is considered a form of wages. As wages cannot be forfeited or waived, vacation pay likewise cannot be forfeited or waived. INFO #14 makes clear that paid leave that can be used for any purpose will be considered “vacation pay” regardless of what the pay is called; “personal days,” “paid time off,” or “annual leave” can all be considered “vacation pay” and therefore wages under the Colorado Wage Act. (Leave taken for a specific purpose, however, such as parental leave or bereavement leave, are not considered vacation pay.) As wages, employees are also entitled to have their accrued vacation days paid out the day after separation with their final paycheck.
INFO #14 highlights the importance for employers to clearly define their paid leave policies. Employers are, for example, entitled to define the rate at which an employee may accrue paid leave, how much paid leave may be accrued in a time period, and how much paid leave may be used within a specific time period. An employer, however, cannot limit how much already-accrued vacation pay carries over to the next year (that is, apply a use-it-or-lose-it paid leave policy). Employers who use PTO in lieu of paid sick leave under the Healthy Families and Workplaces Act (HFWA) should likewise be careful not to apply PTO limits that would run afoul of HFWA’s the minimum sick leave requirements.
If you need assistance reviewing your existing vacation or PTO policy, please reach out to us at 719-212-2890 or schedule an appointment here. We look forward to discussing your options with you.
