The Colorado Wage Act governs how employers must pay wages, including commissions and bonuses, to employees in a timely manner. This law ensures that earned compensation, including performance-based incentives, is properly paid and not unfairly withheld.
Recently, the Colorado Division of Labor Standards and Statistics issued Interpretive Notice & Formal Opinion #17 (INFO #17) to clarify employer obligations regarding commission payments and bonus structures. This opinion provides updated guidance on when commissions and bonuses qualify as earned wages under the Colorado Wage Act, how they must be paid, and what penalties apply for noncompliance.
Employers operating in Colorado should understand these regulations to avoid wage violations and potential penalties. Employees should also be aware of their rights to ensure they receive earned commissions and bonuses in accordance with the law.
Learn more about the Colorado Wage Act
Do Colorado Commissions and Bonuses Count as Wages?
Under the Colorado Wage Act, commissions and bonuses are “wages” or “compensation.” An employer must pay commissions and bonuses earned for labor or service performed in accordance with the terms of an agreement between an employer and employee.
To be entitled to a commission or bonus, an employee must show three elements – (1) that the commission or bonus was “earned,” (2) that it was earned “in accordance with the terms of an agreement,” and (3) that the amount owed is “determinable.”
In the Interpretive guidance, the CDOL defined these concepts as follows:
- Earned: that the employee did the work they had to do, in exchange for the promised wages.
- In accordance with the Terms of the Agreement: that, if the parties agreed in advance that the employer wouldn’t have to pay the wages until certain conditions were met, those conditions were met.
- Determinable: that the dollar amount of the wages can be calculated.
What This Means for You:
In simple terms, this means that commissions and bonuses count as wages under Colorado law, so employers must pay them if they have been earned. To qualify for payment, an employee must show that they completed the required work, met any conditions outlined in their agreement, and that the amount owed can be clearly calculated. If all three conditions are met, the employer is legally required to pay the commission or bonus.
What Qualifies as an Earned Commission?
Under the Colorado Wage Act, employers and employees generally decide when a commission or bonus is considered “earned.” According to the CDOL, unless otherwise agreed, a salesperson earns a commission when a sale is made.
The Interpretive Guidance provides key examples:
- If an employer and employee agree that a commission is earned only when a sale is made and payment is collected, the employee has not earned the commission if they leave before payment is received.
- If an employer promises a “generous” year-end bonus but provides no specific terms, the employer is not obligated to pay the bonus because its amount is undetermined.
- In the case of a roofing company offering a commission based on a set formula (50% of projected revenue after a fixed overhead cost), the employee is still entitled to the commission, even if the project ends unprofitable. Since the agreement did not require actual profitability, the commission is owed as long as the sale is made and the formula is followed.
Questions about Colorado wages? Contact our Denver Employment Lawyers
When Must Colorado Employers Pay Out Commissions?
- Conditions that employers can legally set for payment: Employers and employees may agree on specific conditions for earning commissions or bonuses. However, the Colorado Wage Act invalidates any contract terms that attempt to bypass its requirements. Employers cannot use conditions to avoid paying earned wages.
- The limits of employer discretion under the Colorado Wage Act: Employers must pay commissions or bonuses if the employee did the required work, the agreed conditions are met, and the wages are calculable. Employers cannot manipulate terms to avoid paying wages by firing employees just before a payday.
- How termination impacts commission payouts: If an employee’s efforts led to a sale, they are generally entitled to the commission, even if they leave before payment is made.
Read more about Sales Commissions Under the Colorado Wage Act
Can Colorado Employers Withhold Commissions After Termination?
- General rule: Employees are entitled to commissions if their efforts were responsible for a sale, even if they are no longer employed when the payment is made.
- Case example: Hallmon v. Advance Auto Parts and employer tactics to avoid payouts: In this case, the employer refused to pay a bonus to an employee fired the day before payout, despite the employee earning it. The court ruled the bonus was “earned” and owed, as the employer’s policy didn’t specify conditions for earning the bonus, only payment conditions.
- CDOL’s stance on post-employment commission payments: The CDOL supports that commissions earned through an employee’s efforts should be paid, even after termination, as long as the agreement doesn’t explicitly prevent it.
Are Unpaid Commissions Subject to Wage Act Penalties?
- CDOL’s Example #10 on commission payouts after termination: In a case where an employee earned a 5% commission on sales paid by customers after their departure, the CDOL determined that the commissions were owed under the Wage Act, even though the customer paid after employment ended.
- How written demands for unpaid commissions can trigger penalties: If an employee demands unpaid commissions after customer payments are received, and the employer refuses, the CDOL can apply penalties under the Wage Act.
- Case reference: Peak Building Solutions, Inc.: In this case, penalties were applied when the employer failed to pay commissions despite the employee’s demand after the customer made the payment.
If you’re facing issues with commission or bonus payments in Colorado, it’s important to know your rights. As experienced employment attorneys, we can help you navigate complex wage disputes and ensure you’re compensated fairly. Contact us today for a consultation and protect your hard-earned wages.