Colorado Changed the Rules for Employers – Again!

If you employ people in Colorado, your compliance obligations just expanded. COMPS Order #40 took effect February 1, 2026, and it touches everything from who counts as an “employer” to how you track vacation and sick time. Colorado also finalized new youth employment rules and tweaked how you calculate sick leave pay rates.

None of this is optional, and the enforcement mechanisms have real teeth. Here’s what actually changed and what you need to do about it.

The “Employer” Definition Just Got Wider

This is the change that should get the most attention from business owners. Under the old rules, Colorado’s definition of “employer” mirrored the federal Fair Labor Standards Act. That’s no longer the case.

COMPS Order #40 now treats anyone who owns or controls at least 25% of a company’s ownership interests as an “employer” under state wage law. That means potential personal liability for wage violations — not just liability for the business entity.

There’s one narrow escape hatch: a minority owner can be excluded if the employer demonstrates that owner has fully delegated authority over day-to-day operations. But the burden of proof sits with the employer, not the owner claiming they’re hands-off.

State agencies and political subdivisions are still exempt. Everyone else should take a hard look at their ownership structure.

Tip Credits Get More Flexible — If Your City Allows It

Colorado’s statewide tip credit remains capped at $3.02 per hour, with employers required to pay at least the tipped minimum wage as a direct wage. That hasn’t changed.

What’s new: the 2025 legislature authorized local governments with minimum wages above the state minimum to set a higher tip credit. COMPS Order #40 now reflects that authority in the regulations.

The core protection stays intact — an employee’s direct wages plus tips must equal at least the applicable minimum wage, and employers must cover any shortfall. But if you operate in a city that’s adopted a higher minimum wage and has authorized an increased tip credit, you may have more flexibility in how you structure tipped employee compensation.

You Now Have to Track Vacation and Sick Leave Balances

Colorado employers already had to maintain records covering employee basics (name, address, occupation, hire date), hours worked, tip credits, and pay details. That list just got longer.

Under the new rules, employers must also maintain records showing:

• Vacation pay hours accrued, used, and available during the current benefit year
• HFWA (sick leave) hours accrued, used, and available, when tracked separately from vacation time

On the disclosure side, employers can provide leave balance information on pay statements and must deliver it in writing or electronically if an employee requests it — up to once per month unless your policy allows more frequent requests. You pick the delivery method: pay stubs, self-service portals, or separate communications all work.

If you’re not already tracking this granularly, now’s the time to update your systems.

Sick Leave Pay Calculations Got More Complicated

Colorado’s Healthy Families and Workplaces Act requires employers to pay sick leave at the employee’s normal hourly rate, excluding overtime, bonuses, and holiday pay. Simple enough for salaried employees. Less simple for everyone else.

The amended Wage Protection Rules lay out specific scenarios:

Salaried, commission-only, or piece rate employees — if taking leave doesn’t reduce their pay, no additional compensation is owed just for using leave.

Salary plus commission — the commission piece gets excluded from the sick leave pay rate.

Multiple pay rates (shift differentials, separate jobs with the same employer) — pay the rate the employee would have earned during the missed shift, if the schedule was known when they called out. If someone was scheduled for a shift with a differential and calls in sick, you pay the differential rate.

Unknown schedules — when you don’t know what the employee would have worked, use a lookback period: the most recent 30 calendar days or full pay period(s) totaling 28 to 31 days before the leave. Include hourly rates, salary, shift differentials, tip credits, and commissions (for wage-plus-commission employees). Exclude overtime, bonuses, and holiday pay. For newer employees who haven’t been there a full lookback period, use all days worked before the leave.

And the floor on all of this: regardless of the calculation, sick leave pay can never drop below the applicable minimum wage.

Youth Employment Rules Are Significantly Tighter

Colorado’s final rules under the Youth Employment Opportunity Act create a much heavier compliance burden for anyone hiring minors.

On the recordkeeping side, employers must now collect and retain — until three years after the minor turns 18 or employment ends, whichever comes first:

• Any exemption documentation allowing the minor to work hours or duties otherwise prohibited
• Age certificates and related documents
• Proof of high school diploma, GED, or career and technical education completion
• School release permits and related documents

The rules also expand the list of prohibited employment for minors, covering hazardous occupations, power-driven equipment, toxic substance exposure, and employment in specific types of establishments including liquor stores, marijuana dispensaries, casinos, and adult entertainment venues. Additional restrictions apply to minors under 16 and under 14.

One detail worth noting: while the law allows non-emancipated minors to be paid 15% below minimum wage, employers must document eligibility for that subminimum rate. And any minor employed in violation of the rules must be paid the full minimum wage regardless.

The Division now has explicit authority to investigate complaints, assess penalties, and issue determinations ordering corrective action, fines, or damages. After an initial determination, they can stack additional penalties for each offense without sending another complaint notice.

What You Need to Do Right Now

Review your ownership structure. If anyone holds 25% or more of the business, understand their potential personal exposure under the expanded employer definition.

Update your recordkeeping systems. Add vacation and sick leave balance tracking if you’re not already doing it. Make sure you can produce those records on request.

Recalculate sick leave pay procedures. Walk through the new scenarios with your payroll team — especially if you have employees working multiple rates or variable schedules.

Audit your youth employment practices. If you hire minors, make sure you’re collecting and retaining all required documentation and that no one is working in a now-prohibited capacity.

Post the updated COMPS Order. The new poster needs to be distributed and incorporated into your employee handbook.

Colorado keeps ratcheting up employer obligations, and the window between announcement and enforcement is getting shorter. February 1st already passed — if you haven’t made these changes yet, you’re already behind.

 

I hope this helps.