The Colorado Supreme Court issued a decision, finding that the “regular rate of pay” under Colorado law includes holiday incentive pay for purposes of calculating overtime. The Court’s decision significantly impacts how Colorado employers calculate overtime rates for employees not exempt from state overtime requirements. Background
Under the Fair Labor Standards Act (FLSA), employers must pay non-exempt employees at a rate of no less than time and one-half the “regular rate of pay” for all hours worked over 40 hours in a workweek. The regular rate includes all renumeration an employee receives except for compensation falling within a statutory exclusion.  

An example of pay that may be excluded from the calculation under the FLSA  includes:

 “extra compensation provided by a premium rate paid for work by the employee on Saturdays, Sundays, holidays, or regular days of rest, or on the sixth or seventh day of the workweek, where such premium rate is not less than one and one-half times the rate established in good faith for like work performed in nonovertime hours on other days.”

Many states, however, do not provide for such an express exclusion and Colorado is one such state.  Colorado law provides:

“The regular rate includes all compensation paid to an employee, including set hourly rates, shift differentials, minimum wage tip credits, nondiscretionary bonuses, production bonuses, and commissions used for calculating hourly overtime rates for non-exempt employees. Business expenses, bona fide gifts, discretionary bonuses, tips, employer investment contributions, vacation pay, holiday pay, sick leave, jury duty, or other pay for non-work hours may be excluded from regular rates.” (emphasis added)

The Colorado Supreme Court’s Decision

The underlying facts of the case involved a former warehouse employee who received holiday incentive pay during his employment, which entitled him (and other employees) to one and one-half times their regular hourly pay rate when working on a company holiday.  

The Supreme Court ruled that Colorado law requires employers to include holiday incentive pay in the “regular rate of pay” calculation for overtime purposes.  The Court noted that the payment in this case was a shift differential given the payment was tied to undesirable work hours.   The Court also noted that “states are free to provide employees with benefits that exceed those set out in the FLSA” and that the FLSA “sets a floor, not a ceiling, on compensation that employees must receive.”

Next steps

·      Impacted employers should review policies and practices to ensure that overtime is properly calculated under CO law.

·      The Supreme Court’s decision could be construed to apply retroactively.   Employers should consult with counsel on how to address situations involving historical overtime premium payments for workweeks involving holiday incentive pay or similar shift differentials.

Contact your ADP Service Representative if you have any questions.