Colorado Overtime Rule Would Trigger Employer ‘Scramble’

Colorado employers that were watching the new federal overtime rule might soon have an even bigger wage-and-hour compliance task — Colorado’s own overtime rule. 

The Colorado Department of Labor and Employment seeks to expand the number of employees in the state who are eligible for overtime pay. The CDLE on Nov. 15 published a proposed rule to raise the minimum salary for exempt workers to $42,500 next year.

The new threshold, scheduled to take effect July 1, will be higher than the federal overtime ceiling set to rise to $35,568 on Jan. 1. An estimated 185,000 workers in Colorado would become newly non-exempt, according to the Bell Policy Center. 

The proposed rule, known as Colorado Overtime & Minimum Pay Standards Order No. 36, would also make the vast majority of Colorado workers subject to the state’s wage-and-hour regulations, whereas they currently apply to workers in just four industry groups.   

Management-side employment lawyers say the proposed overtime requirements, assuming they take effect, will have many Colorado employers hurrying to make adjustments to comply by the summer effective date. 

Colorado currently lacks its own minimum salary workers must earn to be exempt from overtime, so Colorado employers have defaulted to the federal threshold. Colorado’s wage-and-hour requirements tended to be overlooked in general because they have applied only to certain sectors, said Brooke Colaizzi, an employment lawyer and member at Sherman & Howard in Denver. 

“It’s funny how many employers I work with who don’t pay much attention to state wage law … because they’ve never been covered,” Colaizzi said. But now, “all of a sudden,” they’re subject to overtime requirements that exceed the Fair Labor Standards Act, she added. 

Previously, Colorado’s wage orders only covered four industries: retail and service; food and beverage; commercial support service; and health and medical. 

The new wage order would, with some exceptions, cover employees in all industries. 

The new expansion would eliminate ambiguity over which workers are subject to the Colorado Minimum Wage Order. 

The threshold hike means many employers might raise some workers’ annual pay to the $42,500 line to keep them salaried. But the threshold will be a moving target. 

The proposed rule would also raise the threshold another $3,000 every year until 2026, where it will hit $57,500, and then adjust according to the consumer price index thereafter. 

Many employers had already prepared for the Labor Department’s overtime rule under the Obama administration, which would have doubled the federal threshold to $47,000 before a federal judge struck it down in late 2017. 

Those employers won’t feel Colorado’s rule so much, Colaizzi said.  

Retail and hospitality employers were already gearing up for the federal threshold hike, according to Austin Smith, managing shareholder of the Denver office of Ogletree Deakins Nash Smoak & Stewart. Affected workers would include assistant managers or other lower-paid front-line supervisors that companies previously considered exempt. But with its higher threshold, Colorado will cause those employers to move even more of those workers into nonexempt status, Smith said. 

The broadened scope of the Colorado Minimum Wage Order “will matter just as much, if not more, than the threshold,” Smith said. 

With nearly all industries implicated, companies that employ delivery drivers in the commercial space, for example, might have to double-check their pay practices for those workers. 

Smith said the annual $3,000 threshold increase in the proposed order is “pretty dramatic” and would have a wide reach as the years pass. “Once you eclipse a $50,000 threshold, you’re really going to encompass a lot of folks,” he added. 

Colaizzi said employers have found the proposed rule’s timing about as troublesome as the rule itself. 

“One of the biggest pushbacks that I’ve heard so far is on the timeline … simply because this is coming at the end of the year when employers’ budgets are done,” she said. 

“Employers are going to have to scramble from a funding perspective.” 

One change in the proposed order that’s currently flying under the radar, Colaizzi said, is how it would adjust the state’s definitions of “employer” and “employee” to align with the FLSA.

 In other words, an employer would “include any person acting directly or indirectly in the interest of an employer in relation to an employee.” 

While that change doesn’t seem controversial on its face, it would make individuals liable for Colorado wage law violations — a situation that hadn’t existed before, Colaizzi said. 

Individuals could therefore be subject to both state and federal wage-and-hour lawsuits under the proposed order. 

The rule’s public comment period ends Dec. 31. The CDLE will hold a public hearing on the proposed rule Dec. 16. 

Smith said employer groups are likely to voice a lot of contention with the rule before the state is scheduled to adopt it Jan. 10. But given the “less employer-friendly” leanings of Colorado Gov. Jared Polis and the Democratic majority in the General Assembly, Smith said he doubts there will be meaningful intervention to soften the rule. 

“I think you’re going to see a fair amount of pushback,” Smith said. “I don’t think you’re going to see a lot of give.” 

— Doug Chartier

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