Colorado PTO Payout Laws: What Employees Need to Know

Overview of Colorado PTO Laws

Paid Time Off (PTO) is shorthand that encompasses various types of paid leave, including vacation time, sick leave, and personal or mental health days. PTO allows employees to take a break from work without loss of income, while also protecting employers from losing workers to job burnout. Employers regularly offer PTO to employees in full-time positions as an incentive for applying or accepting a job, and to ensure that workers are motivated. A typical plan will grant a set number of PTO hours or days after a probationary period.
Colorado is unique when it comes to PTO. State law does not require employers to provide PTO, and states that any legal days off — such as sick or vacation time — are granted at the employers’ discretion. However, in 2019, the Colorado Healthy Families and Workplaces Act amended state law to establish required PTO for employees who are sick, disabled, or injured. In general, these employees are entitled to additional time to seek medical care, with a minimum of four days after working for one year. Smaller organizations are subject to fewer restrictions.
PTO is part of a greater category of benefits that offer pay to workers while they are away from their normal duties . This can include PTO, as well as statutory benefits such as pregnancy leave, jury duty leave, domestic violence leave, and volunteer fire-fighting leave. PTO is not usually defined in the context of paid parental leave, workers compensation, or public office leave. PTO is generally unpaid time off offered by employers to full-time employees to help maintain a good work-life balance. Depending on the state, PTO may include one or more of the following types of leave: PTO benefits typically come in the form of hours or days, and are usually paid out either as a lump sum or as a percentage of a payout based on the employee’s hourly rate. For example, employers may offer PTO of one hour for every 30 hours worked, such as with family-friendly policies and for sick leave. Some plans will only grant PTO for the entire day, rather than hourly.
The Colorado Department of Labor and Employment (CDLE) recognizes PTO as a benefit. Both employers and employees may choose to provide or accept PTO in accordance with state law. Employers may choose to require that employees use their accrued PTO to cover scheduled time off, such as a business trip.

What is a PTO Payout in Colorado?

Colorado defines PTO as "paid vacation, sick leave, or other paid time off of limited duration, whether provided on an accrual basis or otherwise," and thus "Colorado PTO payout" is essentially the same as "vacation pay," and it is similarly based on a Colorado employee’s earned vacation days.
Because Colorado has no law that specifically regulates whether and under what circumstances currently employed workers may cash out accrued PTO days, Colorado employers have the discretion to decide for themselves the extent to which unused paid time off is compensated upon termination. However, if an employer has a policy of paying out unused paid time off, Colorado law requires the employer to clearly and unequivocally articulate the policy or any exceptions to its terms.
If a Colorado employer does not have a formal policy concerning the cashing out of unused PTO days, upon termination of employment the fair interpretation of common industry practice is to conclude that regardless of the reason for separation whether voluntary or involuntary, an employee is entitled to payment for earned and unused vacation days. Moreover, because Colorado PTO (used synonymously with vacation days and paid time off) is treated as wages, stepped in the shoes of unpaid wages, and thus protected by Colorado wage payment laws, it means that an employee may be able to recover damages for waiting time penalties for an untimely payout of accrued PTO days.
On the other hand, where an employer has a written policy or practice customarily followed by it that forbids the payout of unused PTO days earlier than 30 days following discharge, an employer may avoid liability for such losses, provided that the written policy or practices has been affirmatively communicated to all employees prior to discharge.

Recent Changes to Colorado’s Laws on PTO Payouts

03-15-2018 Legislature passed SB 18-005, a bill intended to affect the Colorado wage-payment laws. The bill, which applies only to employees with earned paid sick leave under the Healthy Families and Workplaces Act of 2015 (HFWA), requires employers to pay out the unused sick leave provided under the HFWA either when the employee separates from employment or at the end of the annual accrual period, whichever occurs first. This new payout requirement took effect on January 1, 2020, which is the effective date of that part of the HFWA which requires employers to provide employees with the state-mandated annual sick leave benefit that was signed into law in 2015. Previously, there was no requirement under state or local law to pay out accrued paid sick leave. Any unused paid sick leave hours will be paid at the employee’s highest hourly wage rate during the full annual accrual period. If an employee is terminated for reasons related to his or her ability to work, the employer may require a doctor’s confirmation of an employee’s ability to work before paying out any accrued paid sick leave. The Department of Labor and Employment will have the authority to enforce this provision of the act. (Effective January 1, 2020)

Employee Rights vs. Employer Duties in Colorado

Under Colorado law, employees have a right to receive some form of payment for accrued, unused PTO. Further, employers have an obligation to provide that payment under the law.
Employees that are non-exempt and are paid by the hour have the following rights, and obligations on the part of their employer: In addition, employees that work for an employer that designates vacation as earned wages also have the right to payment for accrued, unused PTO upon termination. The payment has to be for the entire amount of the unused PTO, subject to the same two-year cut-off for termination described above.
Employers, at the very least, have the obligation to review the employment agreement for any relevant contractual right or remedy, or to consider any policy in effect prior to any PTO award that might add, change, subtract or reduce an unused PTO payout. If there is no such policy or contract affecting an unused PTO award or payout, employers are encouraged to be compliant with Colorado law and issue payment for all accrued, unused PTO that employees have earned.
Unlike vacation, however, in order for sick time to be considered paid wages, the sick time has to be earned or acquired, just like vacation. Moreover, a sick time payout of any kind is not mandated by Colorado law. Thus, employers do not have a legal obligation to pay accrued, unused sick time pay, although the employer may have a contractual right or remedy, or employee policy in place allowing the payout of such unused sick time.

Common Myths About Colorado PTO Payouts

Common misconceptions abound about what Colorado law states regarding the payout of PTO upon termination of employment. Some of the more common misconceptions include:

• My employer is required to give me a paycheck with my PTO accrued in it if I quit or become terminated. This is actually not the case. As outlined above, per statute, employers are required to pay out only vacation time upon termination or resignation. Therefore, an employer may not owe you any additional accrued PTO upon resigning from or being fired from your job.
• I have been employed for a specific period of time, so I am owed a lump-sum payout of all of the PTO I accrued over that time. Again, this is not necessarily true. As described above, accrued vacation time must be paid out upon resignation or termination, but no other form of PTO is required to be paid out simply because it was accrued.
• My employer has a company policy stating that I will be paid out PTO upon termination regardless of how the PTO payday period is defined. This is possibly true, but not required by Colorado law. In most cases , employers in Colorado have discretion about what time of PTO will be paid out upon termination, so if an employer’s policy states that PTO will be paid out, the employer is obligated to pay that amount out. However, if the policy states something different than what the Colorado state statute requires, an employer must only pay that amount that is required by Colorado state law. For example, if an employer’s policy states that administration leave (as defined by the company as PTO) will be paid out, the employer must comply with this policy, even if the law does not require it. On the other hand, however, if the policy states that the employer shall pay out all accrued PTO (vacation time and administrative leave, for example) upon termination, the employer must comply with this policy.
• My employer is vainly interpreting the Colorado state statute on PTO. No, the language is not ambiguous. Limited paid sick time is specifically enumerated in the Colorado state statute and is excluded from the state law’s requirements regarding PTO payout.

Ensuring You’re in Compliance with Colorado PTO Laws

Employers must first ensure that their policies (or express and implied promises) reasonably inform employees that accrued PTO is paid out. Just because a policy requires a request for payment (as the statute requires) does not mean that it is clear whether the employer will pay it out, or not.
The Colorado Wage Claim Act, § 8-4-101, et seq., definitely complicates the issue further. In Jones v. Dressel, 623 P.2d 370 (Colo. App. 1980), the Colorado Court of Appeals explained the law as follows: Where an employee voluntarily leaves a job and has earned wages for services performed, the employee is entitled to be paid for those services when the wages are due, unless the payment is contingent upon a condition which the employee has the option of performing. But where the employee voluntarily terminates the employment relationship and the employer has a policy of paying for unused sick leave, the employee is entitled to be paid when and if the employee makes a demand therefore, rather than at the time when wages are otherwise due. In Allen v. Denver Public Schools, 92 LCR 656 (D. Colo. 1997), Judge Matsch held that the timing of the payment can be contingent. However, there must also be an unequivocal and certain manifestation by the employer that the payment will be made. Thus, the PLRC must complete its investigation into PTO use in the workplace: Are all PTO benefits conditioned on some action (be it a transfer, a turnover, a severance, or something else)?

Legal Options for Recovering Unpaid PTO in Colorado

Employees in Colorado have legal recourse when their earned PTO is not properly paid out upon termination or resignation. The remedies available to employees under Colorado law are the same as for unpaid wages.
Colorado law does not permit an employer to pay the value of accrued PTO in lieu of granting time off. Rather, Colorado law requires employers do one of two things: (1) to pay a higher hourly wage than that agreed upon by the parties but which includes PTO, or (2) to explicitly agree with the employee to pay out any unused PTO at termination.
An employee may file a complaint with the Colorado Department of Labor and Employment (CDLE). The CDLE thoroughly investigates unpaid wage complaints and will send a representative to interview the employee and the employer. Oftentimes the CDLE is able to resolve the complaint during its investigation. If not, the CDLE will issue a written determination to the employee and employer regarding whether the employee has been paid all the wages owed them.
A written determination of the CDLE is admissible in court, even in a private lawsuit filed by the employee. Hence, the CDLE can save the employee the dollar cost of bringing a lawsuit, since the employee may use the determination as evidence in court of the wages owed to her.
The CDLE does not: (1) litigate individual cases on behalf of employees; (2) issue punitive awards; and (3) order reinstatement.
Alternatively, the employee can sue in court. Employees in Colorado can seek potential damages of twice the amount of the wages owed, plus costs and reasonable attorney’s fees associated with the litigation. A court has discretion in awarding punitive damages, therefore it could award less than double, but not more than double, wages owing. Colorado courts take a dim view of employers who do not pay wages due to its employees and often times will award high double damages against employers who are found to have violated Colorado wage laws.

Conclusion: Colorado Employee PTO Payouts

In conclusion, Colorado PTO payout laws differ greatly from other states in that Colorado does not consider PTO earned on an annual basis, but, rather, considers such paid time off to be accrued on a per-payroll-period basis. This creates the potential for problems for both employees and employers. Employees may, but are not guaranteed to, receive a payout of PTO when they leave employment, while employers may or may not be required to make such payment depending on whether the law defines their specific type of paid leave as PTO and whether and to what extent the employer’s policy is contractual in nature.
Because these issues can be difficult to understand, we have offered a few practical tips regarding PTO and PTO payout rights in Colorado.
Employees should review their employer’s policy on paid time off to see if the policy requires payment of accrued paid time off at the end of their employment. If an employee has received a termination notice from his/her employer, the employee should review the policy to determine if paid time off may be paid out and, if so, contact their employer for instructions to ensure that the employee receives that pay upon separation .
Employers should consider instituting a written paid time off policy to avoid confusion among employees and ensure compliance with the requirements of C.R.S. § 8-4-101. The policy should clearly and explicitly describe how paid time off is accrued, whether or not such time off is considered wages under Colorado law, and whether the employer will make a payment to the employee for accrued paid time off upon the employee’s separation of employment. If the employer provides a payout of paid time off on separation of employment, the employer should consider if such payment would be made regardless of the reason for separation, in the event the employer terminates the employee.
Employers should also carefully review their personnel policies and employment agreements to ensure that the terms of these documents accurately reflect whether accrued paid time off is a benefit provided at the employer’s discretion or whether the statute makes accrued paid time off a matter of contract.