© 2021 American Payroll Institute, Inc. June 28, 2021 Volume 23 Issue 13 Unused, Earned Vacation Pay Forfeiture Not Allowed Under Colorado Law The Colorado Supreme Court determined that although state law does not create an automatic right to vacation pay if an employer chooses to provide vacation pay, it cannot be forfeited once earned. The court went on to say that any employment agreement provision allowing for forfeiture of earned vacation pay is void [Nieto v. Clark’s Market, No. 19SC553 (Colo., 6-14-21)]. State law and regulations The Colorado Wage Act provides that if an employer chooses to provide paid vacation all “earned and determinable” vacation must be paid upon separation from employment “in accordance with the terms of any agreement between the employer and the employee.” According to the court, although this means the employer has some discretion for establishing the terms under which vacation must be paid out on termination, forfeiture is not an allowable option. The forfeiture of earned vacation pay has been explicitly prohibited by the Wage Protection Act Rules since August 20, 2019. Although employment agreements cannot allow forfeiture of any earned vacation pay, they can dictate: (1) whether there is any vacation pay at all (2) the amount of vacation pay per year or other period (3) whether vacation pay accrues all at once, or instead accrues proportionally each week, month, or other period and (4) whether there is an accrual cap of one year’s worth (or more) of vacation pay. Coverage and exemptions The Colorado Wage Act covers most private employers in the state, but most public employers including state and local government agencies and school districts are exempt. Employer policy is void The court decision voided the employer policy at issue, which dictated that unused, accrued vacation pay would be forfeited if the employee was fired or quit without providing at least two weeks’ notice. The supreme court determined that although the Colorado Wage Act does not create an automatic right to vacation pay, where an employer chooses to provide such pay, it cannot be forfeited once earned. Accordingly, the court held that all earned and determinable vacation pay must be paid upon separation and that any agreement purporting to forfeit earned vacation pay is void. Use-it-or-lose-it policy guidance Employers may have use-it-or-lose-it policies that disallow carryover after employees accrue a year of vacation pay, but that do not forfeit any of that year’s worth, according to the rules. For example, an agreement for 10 vacation days per year: (a) may provide that employees can accrue more than 10 days, by allowing carryover of accrued vacation from year to year (b) may provide that employees cannot accrue more than 10 days, by disallowing carryover of unused vacation from year to year but (c) may not provide that after an employee accrues 10 days, that amount diminishes below 10 days for any reason. Although the court opinion did not directly address use-it-or-lose-it or other vacation policies that might apply during employment, it did say the interpretation of the law by the applicable state agency (Colorado Department of Labor and Employment, Division of Labor Standards and Statistics) including its interpretation in the 2019 amendment to the rules is consistent with the law’s purpose, language, structure, and legislative history. Changes to COVID-19 Nexus Guidance as States Lift Pandemic Restrictions Many states have begun the process of ending COVID-19-related emergency restrictions. Employees who were previously working from home may return to the office (permanently or on a hybrid schedule). Some states that previously relaxed nexus requirements temporarily due to the pandemic have now announced expiration dates for the relaxed requirements. It is important for employers to be aware of these changes, as they could affect employee withholding. Indiana. Last year, the Department of Revenue (DOR) announced that it would not use an employee’s relocation to work from home in Indiana as a basis for establishing nexus when the relocation was a result of a work from home declaration or pursuant to the order of a doctor (see PAYSTATE UPDATE, Issue 8, Vol. 22). This accommodation will end on June 30, 2021, when the governor rescinds certain executive orders related to the pandemic. If the employee remains working in Indiana after that date, the presence can be used in determining whether the employer has nexus with Indiana. The accommodation for workers subject to a doctor’s order will expire on the later of June 30, 2021, or the expiration of an existing
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