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Colorado Wage Theft – Wage Deduction Notice Requirement

By: Debra Fowler, Training & Compliance Manager

Senate Bill 22-161, Wage Theft Employee Misclassification Enforcement, passed in Colorado with an effective date of August 10, 2022, updating the law on payment of wages and employee misclassification. The changes to the law include increasing penalties for employers who are non-compliant with paying employees’ wages at the time of separation, effective August 10, 2022. An important addition, a new requirement for a written notice of planned deductions which impacts final pay obligations for Colorado employers goes into effect January 1, 2023.


Any Colorado employer planning to deduct the value of unreturned property or funds from an employee’s final paycheck on or after January 1, 2023, must first provide a written notice informing the employee about the deductions which will be made. The written notice must be given to the employee within ten (10) days of their separation date and must include:


  • The amount of money or value of property that was not returned;

  • The replacement value of the property;

  • The date (to the extent known) when the money or property was provided to the employee;

  • The date the employer believes the employee should have paid the money or returned the property to the employer.


Within fourteen (14) days after the employer provides the notice, if the employee returns the money or property, the employer is required to reimburse the amount of the deduction to the employee, again within 14 days of the return.


Prior to the August 10, 2022, legislative change, Colorado employers were not required to provide their employees with a notice before deducting from final pay for unreturned equipment or funds. The law continues to include an exception to the requirement for final pay to be due at separation; the exception allows the employer an additional ten (10) calendar days from separation date to audit and adjust the accounts and property value of any items entrusted to the employee and to pay the employee their owed wages minus the deduction. January 1, 2023, change adds the notice requirement to inform employees about the amount that will be deducted, prior to making the deduction.


 

Penalties for Non-Compliance:


Effective August 10, 2022, the new law increased penalties for employers who fail or refuse to pay the earned wages due to an employee. Employees, their designated agent, or the Division, retain the right to send a written wage demand to the employer; this was already included in the law. Employers have 14 days from the wage demand to pay the employee the full amount of all wages owed.

Under the new law requirements, if wages are not paid to the employee within 14 days of the wage demand, penalties will be automatically assessed and will be for the total amount of wages due plus penalties of (a) 200% of unpaid wages, OR (b) $1,000, whichever is greater.

If the failure to pay is determined as willful (if the claim is the employer’s second failure to pay employees compensation of the same/similar type within the past five years), the penalty will be the greater of (a) 300% of unpaid wages, OR (b) $3,000.

If an employer pays the employee(s) in full the amount(s) demanded as a “good faith” effort after receiving a written demand, the employee is required to “dismiss the action.”


 

Frequently Asked Questions:


Does it matter if the separation was voluntary or involuntary?

  • No, no matter the reason for separation (resignation, termination, layoff) the employer must send the written notice if there are funds to be deducted.


What if I don’t have a written agreement with the employee agreeing to repay the funds or return the property?

  • Without a signed agreement between the employee and the employer, the employer should not deduct funds from employee wages. You should have a signed agreement between the employer and the employee for any equipment, typically at time of hire or when equipment is issued, authorizing the employer to deduct the value of unreturned equipment at time of separation.

  • When an employer loans funds to an employee, whether as a payroll advance or loan, or allowing an employee to take PTO prior to accrual (negative PTO), employers must have a signed written agreement between the employer and the employee authorizing the employer to deduct the amount from an employee’s wages.


What if the employee returns the property or funds after the deduction is made?

  • If the employee returns the funds and/or property after the deduction date, but within 14 days of sending the deduction notice, the employer must reimburse the employee in full for the amount deducted from the employee’s final pay – the reimbursement to the employee must be made within 14 days of the employer receiving the returned funds/property.


What if the amount due by the employee means they would not get a check?

  • Colorado law requires that employees receive at least the minimum wage for all hours worked. Deductions which take employee pay below minimum wage are not allowable, even if this means the employer cannot deduct the full value of the unreturned property or funds.

  • In this scenario, Colorado’s Department of Labor and Employment recommends employers look at other avenues of collecting outstanding balances from the employee, such as civil means.


Can I hold the employee’s final pay check until the funds or property are returned?

No, employers are still subject to the timelines for final pay and deduction notice requirements in Colorado – here is a breakdown:


  • Involuntary separation final pay requirements – with no deduction needed for unreturned equipment/funds (NO WAGE DEDUCTION NOTICE REQUIRED):

  • If payroll is on-site – the employer must pay wages immediately or within 6 hours of the open of the payroll department the following business day.

  • If payroll is off-site – the employer must pay wages no later than 24 hours after the start of business for the payroll department on the next scheduled workday following the separation.


  • Involuntary separation final pay requirements – with a deduction for unreturned equipment/funds (WAGE DEDUCTION NOTICE REQUIRED):

  • Employer has ten (10) calendar days from separation date to audit and adjust the accounts and property value of any items entrusted the employee (funds/equipment), to complete and send the Wage Deduction notice to the employee, and to pay the employee.


  • Voluntary separation by the employee – with deductions for unreturned equipment/funds (WAGE DEDUCTION NOTICE REQUIRED):

  • Employer must send the Wage Deduction notice to the employee within ten (10) days.

  • Employer pays wages minus deductions on the next scheduled pay date.


  • Voluntary separation by the employee – without deductions for unreturned equipment/funds (NO WAGE DEDUCTION NOTICE REQUIRED):

  • Employer pays wages on the next scheduled pay date.


 

Next Steps


To be prepared for the new notice requirement, educate your staff about the new requirement, and develop a notice template to provide to your employees when you plan to make deductions.


Check your employee files to ensure you have written agreements between your business and your employees authorizing deductions from final pay for equipment you have issued to them and/or any PTO advances or payroll loans provided to the employee. Remember, in Colorado, these written agreements between your business and the employee must also include the ability for the employee to revoke authorization for deductions from pay, and if not enforceable or in violation of the law, will not allow you to make deductions.


If you are a Vida HR client with HRO, HR360, or HR on Demand services, reach out to your HR Business Partner for more information about how to communicate this requirement to your staff and to get a copy of our compliant Wage Deduction notice.

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