Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
Effective January 1, 2023, regulations under Colorado’s Healthy Families and Workplaces Act (HFWA) will again change how employers calculate the rate of pay when employees use paid sick and safe leave and/or public health emergency leave. Although employers might welcome certain changes to the pay rate calculation rules, the fact is that these new regulations amount to the third time that Colorado’s Department of Labor & Employment (CDLE) has revised the pay rate calculation rules since the HFWA first took effect in mid-2020. Thus, pay rate calculations under the HFWA are a moving target, making compliance a challenge.
Statutory Pay Standards: Under the HFWA, paid leave must be paid at the “same hourly rate or salary”—which does not include overtime, bonuses, or holiday pay—and with the same benefits, including health care benefits, the employee normally earns during hours worked. Additionally, the HFWA expressly establishes how to calculate the rate of pay when employees earn commissions:
- “For employees paid on a commission basis only, ‘same hourly rate or salary’ means a rate of no less than the applicable minimum wage.”
- “For employees paid an hourly, weekly, or monthly wage and also paid on a commission basis, "same hourly rate or salary" means the rate of pay equivalent to the employee's hourly, weekly, or monthly wage or the applicable minimum wage, whichever is greater.”1
Regulatory Pay Standards: We first recap the evolution of the pay rate calculation rules, concluding with how CDLE instructs employers to calculate the paid leave rate of pay in 2023.
For 2021, the regulations added a requirement that employees be paid at least the applicable minimum wage. More notably, however, for employees with “non-hourly pay,” the regulations required pay at the “regular rate” and cross-referenced the calculation under the separate Colorado Overtime & Minimum Pay Standards (COMPS) Order that employers use for certain non-exempt employees when calculating the overtime “regular” rate. Explaining the change, CDLE stated:
[W]hat an employee “normally earns” is defined as the employee’s “regular rate” under Rule 1.8 of the COMPS Order, which “includes all compensation paid to an employee, including set hourly rates, shift differentials, minimum wage tip credits, nondiscretionary bonuses, production bonuses, and commissions used for calculating hourly overtime rates for non-exempt employees.”
CDLE also noted that the following may be excluded from regular rates: business expenses, bona fide gifts, discretionary bonuses, employer investment contributions, vacation pay, holiday pay, sick leave, jury duty, or other pay for non-work hours.
CDLE revised the pay rate calculation rules to expand the “regular rate” calculations, applying them not only to employees with “non-hourly pay” but also to most other employees. It also introduced a requirement that employers calculate the “regular” rate over a period of the 30 calendar days preceding leave (or fewer if the employee was not yet employed for 30 days).
In a reversal from the 2021 rules, the 2022 rules said bonuses employers must include in the “regular” rate for overtime purposes need not be in the “regular” rate for paid leave purposes.
Finally, the rules included new standards for the pay rate of employees with variable hourly rates. Somewhat akin to the revised rules for bonuses, employers had to look to overtime “regular” rate principles—the weighted average—but use a period of 30 calendar days (or fewer if not yet employed 30 days) before leave rather than the workweek as they would for overtime purposes.
Employers will welcome the news that CDLE is removing the overtime-like “regular” rate calculation. The agency, however, keeps the 30-day (or shorter) lookback period to perform the rate of pay calculation.
The 2023 rules state that the rate of pay must include set hourly or salary rates, shift differentials, tip credits, and commissions. The inclusion of commissions may come as a surprise to employers, given the HFWA directly addresses this issue, as discussed above.
For completeness, below we include verbatim how Rule 3.5.2 will read in 2023:
Pay rate and amount of HFWA leave. Under C.R.S. § 8-13.3-402(8), leave must be paid at the same rate and with the same benefits, including health benefits, as the employee normally earns during hours worked, not including overtime, bonuses, or holiday pay. Leave must be paid on the same schedule as regular wages.
(A) The pay rate for leave must be at least the applicable minimum wage. The HFWA pay rate shall be calculated based upon the employee’s pay over the 30 calendar days prior to taking leave; shall include any set hourly or salary rates, shift differentials, tip credits, and commissions; and shall not include overtime, bonuses, or holiday pay. If an employee has not yet worked 30 calendar days, the longest available period shall be used. The HFWA pay rate for employees covered by Rule 3.5.1(B) [fee-for-service basis employees] shall be calculated in accordance with that Rule.
Next Steps: With little time before the revised rate of pay rules take effect on January 1, 2023, employers should consider how they can, as promptly as practicable, align their payroll rules with Colorado’s latest HFWA rules to ensure employees receive the rate of pay the HFWA requires.
1 Colo. Rev. Stat. § 8-13.3-402(8)(a)(II).