- Employees must receive pay for all vacation hours earned (accrued).
- Vacation policies should be concise and easily understood to prevent misinterpretations.
- Consider setting a cap on how many hours can be earned.
No More “Use-It-or-Lose-It” Vacation Policies for Colorado Employers
The Colorado Department of Labor and Employment (CDLE) indicated it would adopt a tougher enforcement stance against “use-it-or-lose-it” vacation policies.
The CDLE continues its long-standing interpretation that under Colorado law, vacation pay that is earned in accordance with the terms of any agreement is wages owed to the employee upon separation of employment. Employers who have implemented a use-it-or-lose-it policy regarding paid vacation should reconsider. According to CDLE, “Once vacation pay has been earned, it cannot be unearned. Forfeiture clauses are not permitted in vacation agreements.” CDLE’s enforcement position applies to all paid vacation earned on or after January 1, 2015.
CDLE has had the authority to adjudicate complaints for unpaid wages and compensation up to $7,500 since January 1, 2016.
Colorado employers are not required to offer vacation. But, if they do, this is the law:
“Colorado wage law provides that vacation pay, earned in accordance with the terms of any agreement, is classified as wages or compensation. If an employer provides paid vacation for an employee, the employer shall pay upon separation from employment all vacation pay earned and determinable in accordance with the terms of any agreement between the employer and the employee.”
The division says that means that once vacation is earned, it constitutes wages and the employee must be paid and cannot lose it.
Part of the difficultly comes in crafting a policy that defines when vacation is earned. For example, an employee may have to work one year before taking vacation; however, the vacation days would be accrued during that year. So what happens if the employee leaves the company before the year is up and never took those accrued days?
One way employers could decrease their liability is to set caps. For example, an employer might say an employee can only have 80 hours of vacation in the bank and will not accrue more until the 80 hours are used. Or, say vacation pay is earned on the completion of one year served.