Colorado has taken another significant step to combat wage theft and worker misclassification with the enactment of House Bill 25-1001 (HB25-1001), which amends Colorado’s chief wage statute, the Colorado Wage Act.

The legislation significantly strengthens enforcement mechanisms and increases financial penalties for employers that misclassify workers as independent contractors. However, the legislation also offers a reprieve to employers who promptly pay wages owed following receipt of a formal demand filed with the Colorado Department of Labor and Employment (CDLE), Division of Labor Standards and Statistics (DLSS).

The new law is part of Colorado’s broader initiative to close wage enforcement gaps and protect employees while allowing employers a path to remedy violations without automatically facing steep fines.

Quick Hits

• Colorado’s HB25-1001 significantly increases penalties for employers that misclassify workers as independent contractors, with fines up to $50,000 for repeated violations.
• The new law provides a safe harbor for employers, allowing them to avoid automatic penalties if they pay owed wages within fourteen days of a formal complaint filed with the Colorado Department of Labor and Employment (CDLE).
• HB25-1001 expands the CDLE’s jurisdiction to investigate wage claims up to $13,000 and mandates public disclosure of certain wage violations, enhancing transparency and enforcement.

Steeper Penalties for Worker Misclassification

Employers that misclassify employees as independent contractors will now face increased liability. Specifically, beginning January 1, 2028, an employer that misclassifies a worker in a way that impacts the employer’s obligation to pay wages or reporting obligations at the federal, state, and local levels may face the following penalties:

• $5,000 fine for a willful violation
• $10,000 fine if the violation is not corrected within sixty days of a determination by the CDLE
• $25,000 fine for a second or subsequent willful violation within five years
• $50,000 if a second or subsequent willful violation is not corrected within sixty days

These penalties are available in addition to, and not in lieu of, potential liability and fines that often arise from the misclassification of workers, such as unpaid wages and overtime, rest breaks, and sick leave violations. The director of the CDLE will adjust these fines on January 1, 2028, and every other year thereafter.

Safe Harbor: A Lifeline for Employers

Under the Wage Act, an employer is liable for automatic penalties if it fails to pay all wages owed within fourteen days of receipt of a written demand for unpaid wages. For nonwillful violations, the penalty is the greater of twice the unpaid amount or $1,000. For willful violations, the penalty increases to the greater of three times the amount owed or $3,000.

Prior to the amendments, automatic penalties applied no matter how the employee tendered a wage payment demand, even if tendered via an informal method such as an email or text message. However, under the amendments, the DLSS may waive the automatic penalties if an employer remits payment for the full amount of wages owed within fourteen days of receipt of a formal wage complaint filed with the DLSS. This safe harbor applies even if the employee had previously tendered informal, internal written wage payment demands. This provision promotes swift resolution of wage disputes after formal filing without penalizing employers that promptly rectify the issue.

Limited Availability of Attorneys’ Fees for Employers; Expanded Remedies for Employees

Prior to the amendments, an employer could recover attorneys’ fees and costs associated with defending a claim for unpaid wages if the employee recovered less than the amount the employer tendered. Now, under the amendments, an employer may only recover attorneys’ fees and costs if the court finds that the employee’s claim(s) for wages lacks substantial justification.

While the amendments raise the standard for recovery of attorneys’ fees and costs for employers, it expands the remedies available to aggrieved employees. An employee bringing a claim under Colorado’s wage and hour statutes and regulations may now pursue equitable relief, including back pay, reinstatement of employment or front pay, injunctive relief, compensatory damages, and a penalty of $50 per day for each employee and each day of violation, to deter future violations and prevent unjust enrichment.

Expanded Agency Jurisdiction

The amendments expand the CDLE’s jurisdiction to investigate and adjudicate complaints of unpaid wages. Previously, the CDLE’s jurisdiction was limited to claims for unpaid wages of $7,500 or less. Beginning July 1, 2026, this amount is increased to claims for unpaid wages of up to $13,000. Beginning January 1, 2028, the director of the CDLE will increase the CDLE’s authority annually by at least $1,000.

In addition, HB25-1001 now requires the DLSS to publicize citations, rulings, and written findings related to Wage Act violations on the CDLE’s website. The publications must identify the name of the employer and specify whether the violation was willful. Furthermore, the DLSS must report employers incurring a willful violation that is not remedied within sixty days to a government licensing authority with authority to limit or impose conditions on an employer’s license, registration, or permit, which may lead to suspension, restriction, or revocation of the same. Likewise, the DLSS may, but is not required to, report any employer that is found to have violated a wage and hour law to a government body with the power to deny, revoke, or restrict an employer’s license.

Expanded Definition of ‘Employer’

The amendments expand the definition of “employer” under the Wage Act to include individuals with at least 25 percent ownership or control of a business unless the individual has delegated all authority to manage day-to-day operations.

Enhanced Retaliation Protections

Under the Wage Act, an employer may not retaliate against an employee or worker for engaging in protected activity, which includes filing a wage complaint or testifying or providing evidence in a proceeding relating to a violation of the Wage Act. The amendments expand protected activity to include good faith complaints about compliance with wage and hour laws and providing information regarding rights and remedies under wage and hour laws.

In addition, the amendments expand potential remedies for an individual who has been retaliated against under the Wage Act. In addition to back pay, the wages withheld, interest, penalties, liquidated damages, and attorneys’ fees and costs, an aggrieved individual may now also recover compensatory damages for economic and noneconomic losses stemming from the retaliation.

Finally, the amendments require a fact finder consider the temporal proximity between the protected activity and the adverse action in determining whether retaliation occurred. A period of ninety days or less may be sufficient to establish retaliation.

Ultimately, employers may want to closely monitor compliance with Colorado’s strict wage and hour laws to avoid facing steep penalties and exposure to wage and retaliation complaints. However, the new provisions allowing for penalty waiver if payment is made within fourteen days of formal DLSS wage complaints come as welcome relief for employers struggling with how to handle internal, informal wage demands.