Colorado Enacts Increased Wage Act Penalties and Enforcement, Allows Local Governments to Increase Tip Credit

Colorado has enacted House Bill 25-1001, which significantly amends the state’s wage and hour laws by enhancing enforcement mechanisms, expanding employer liability, and strengthening employee protections. The law will take effect on August 6, 2025. 

In addition, the governor recently signed Colorado House Bill 25-1208 to protect the tip credit when localities enact their own minimum wages. As of January 1, 2026, localities will be permitted to set a tip credit higher than the state offset, allowing a larger amount of tips to count toward minimum wage. 

Misclassification and Retaliation Penalties

Under the new amendments to the Colorado Wage Act, § 8-4-101, et. seq. (“Wage Act”), if an employer misclassifies a worker as an independent contractor rather than an employee and the misclassification affects wage or hour obligations under state, federal, or local law, the employer may face steep penalties ranging from $5,000 to $50,000 per affected employee, depending on the severity and whether the violation was remedied, including:

• $5,000 for a willful violation (i.e., intentional or reckless misclassification).
• $10,000 if the violation is not corrected within 60 days after the Division of Labor finds the misclassification.
• $25,000 for a second or subsequent willful violation within five years.
• $50,000 for a second or subsequent willful violation that remains uncorrected after 60 days.

These amounts will be adjusted for inflation starting January 1, 2028, and every two years thereafter. 

Increased Agency Jurisdiction Over Higher Value Wage Claims

The maximum award for administrative claims before the Colorado Department of Labor and Employment Division of Labor Standards and Statistics (“Division”), which has long been $7,500 per employee, is being raised significantly, increasing the potential exposure to employers: 

• Through June 30, 2026: The limit remains $7,500 per employee.
• From July 1, 2026, to December 31, 2027: The limit increases to $13,000 per employee.
• Starting January 1, 2028: The Director will set a new limit every two years, increasing the previous year’s limit by at least $1,000, or more if needed to keep up with inflation.

Expansion of Local and Individual Enforcement Rights

The law provides broad authority for local counties and cities to enforce the Wage Act. The amendments make clear that “persons delegated authority by a county or city” may enforce the Wage Act. This change may have a significant impact on employers operating in Colorado, as it appears to enable city and county agencies—not just state-level entities—to actively investigate and enforce compliance with Colorado wage and hour laws. This decentralized enforcement model means that employers may now face oversight from multiple jurisdictions, increasing the likelihood of audits, investigations, and potential penalties for non-compliance. 

Public Disclosure and Licensing Consequences

The Division will now be required to publish citations, determinations, and written opinions finding violations of the Wage Act, including whether the violation was willful, and the names of employers involved. Additionally, the Division may report willful or unremedied violations to licensing authorities, potentially resulting in restrictions or revocations of an employer’s license, permit, registration, or other business credentials.

Expanded Employer Definition and Potential Personal Liability

The law broadens the definition of “employer” to include individuals who own or control at least 25% of a business unless they can prove they have fully delegated control of day-to-day operations to someone else. 

Penalty Waivers and Repeat Violations

Under the Wage Act, if an employee makes a written demand for payment of wages, the employer does not pay within 14 days, and the amount is found to be owed, employers are liable for penalties of the greater of two times the amount owed or $1,000 per employee for non-willful violations and the greater of three times the amount owed or $3,000 per employee for willful violations. Prior to these amendments, the Division typically applied these damages calculations to Colorado employers that did not pay an employee within 14 days of receiving that employee’s written demand, but did subsequently pay within 14 days of receiving an administrative claim demanding payment. 

In a welcome change for employers, the amendment affords the Division the authority to waive that penalty if the employer pays all the claimed wages within 14 days after receiving an administrative claim (i.e., a formal complaint filed with the state agency), even if the payment is made beyond 14 days from the original written employee demand. However, the Division cannot grant a waiver if the employer has had a previous violation (i.e., failed or refused to pay wages on time) within the past five years. 

Higher Standard for Award of Employers’ Attorney’s Fees

Amendments to the Wage Act in recent years have made it more difficult for prevailing employers to recover their attorneys’ fees, and HB-25-1001 further increases that hurdle. An employer could previously recover attorney’s fees and costs by making a full tender of the amount claimed to be owed in an employee demand, if the employee ultimately recovered less than the amount demanded and tendered. Under the revisions, however, courts will only be able to grant employers their reasonable costs and attorneys’ fees if the employer makes the full tender, and the court finds that the employee’s lawsuit lacked substantial justification.

Right to Sue and Equitable Relief

While employees and other aggrieved individuals could always file a lawsuit in court for violations of any law or rule related to violations of the Wage Act, the amendments now also authorize them to seek equitable relief, such as orders to stop ongoing violations or to prevent employers from benefiting unjustly from unpaid labor. 

State-Funded Wage Recovery for Unpaid Employees After Employer Noncompliance

The amendments shorten employers’ deadlines to pay wages, compensation, or other monetary relief from the previous six months down to 120 days after a final decision or order—whether from the Division of Labor, a hearing officer, or a court. This change appears to be retroactive to orders issued since April 1, 2024. 

Anti-Retaliation Protections and Expanded Remedies

The amendments also significantly strengthen protections for workers against retaliation and discrimination. The law prohibits employers—and any other business entities that benefit from a worker’s labor directly or indirectly—from retaliating against workers who engage in protected activities. The definition of protected activities has been expanded to include an employee raising concerns in good faith about wage and hour compliance.

The amendment adds a presumptive violation scheme: If an adverse action occurs within 90 days of a worker engaging in a protected activity, the timing alone may be used to make a finding of retaliatory intent. Furthermore, any attempt to use a worker’s immigration status as abasis for retaliation is explicitly prohibited.

In addition, the amendments expand the remedies affected workers can seek in a civil lawsuit to include compensatory damages for economic or emotional harm. Courts must also award attorney fees and costs to any prevailing aggrieved person.

Finally, the amendments now authorize the Division to order payment of an aggrieved person’s attorney’s fees and costs, in addition to other available remedies.

Changes to Colorado’s Tip Credit

Effective July 1, 2025, Colorado will have new statewide standards for how local governments must calculate tip offsets when setting local minimum wages that exceed the state minimum wage.

As of July 1, any local government in Colorado that sets a minimum wage higher than the state minimum wage must apply a tip offset of $3.02. This means employers can count up to $3.02 per hour in tips toward meeting the local minimum wage requirement for tipped employees where the local minimum wage exceeds the state minimum. 

Additionally, beginning January 1, 2026, local governments will be allowed to increase the amount of the tip offset beyond the $3.02 set by state law, allowing employers to count more of a tipped employee’s tips toward minimum wage if an increased tip credit is adopted by the local government. However, local governments cannot set the tip offset so high that a tipped employee ends up earning less than the state minimum wage minus $3.02. 

While House Bill 25-1208 expands tip credit offsets, House Bill 25-1001 significantly expands Colorado’s wage and hour protections. Local and state agencies will have strengthened enforcement authority, penalties for noncompliance will increase, and workers’ rights to pursue legal remedies will expand, while Colorado employers will face greater exposure than ever for wage violations and retaliation. We encourage employers to get ahead of these changes by acting promptly to review their wage practices, update compliance procedures, and prepare for the upcoming changes to avoid costly penalties and ensure alignment with the new legal standards.