The Colorado Division of Labor and Employment (CDLE) had a busy last few weeks of December in 2022, revising a number of its Interpretive Notice and Formal Opinions (INFOs). On December 23, 2022, CDLE issued a revised INFO #16 regarding Deductions From, and Credits Towards, Employee Pay.

The Colorado Wage Act (C.R.S. § 8-4-105(1)(e)) and previous CDLE guidance allowed an employer to deduct amounts from an employee’s final paycheck for the amount of money or the value of property that an employee failed to properly pay or return to the employer when the employee separated from employment if: (1) the employer “entrusted the employee with collecting, disbursing, or handling the money or property”; (2) the employer and employee had agreed that the employee would return the money or property; and (3) the employee failed to return that money or property as agreed. At a minimum, employers needed to have a written agreement regarding the money or property at issue. And, under no circumstances, could the deduction from wages bring the employee below the applicable minimum wage. Because of the significant risk of penalties associated with an improper deduction from wages, many employers did not take advantage of this opportunity to recover all or at least some of the value of the money or property that walked out the door with the departing employee. For employers who seek to recover the value of unreturned money or property by way of a deduction from the departing employee’s final paycheck, CDLE’s revised guidance lays out the steps required to do so.

An employer has 10 calendar days after an employee’s separation to determine that the money or property wasn’t returned, and to determine its value— an exception to the standard requirement to pay terminated employees their final wages immediately. The standard rule is that employers must make the final payment of wages to an employee who was separated involuntarily, i.e. fired, immediately with minor exceptions or for employees who were separated voluntarily, i.e. quit, upon the next scheduled payday. Starting in 2023, the end of that 10-day window also serves as the employer’s deadline to provide advance notice to the employee that the employer will be taking a deduction from the employee’s final paycheck. The notice must specify (1) the amount of money or the specific property that the employee failed to pay or return, (2) the replacement value of the property, (3) when the money or property was provided to the employee (to the extent known), and (4) when the employee should have returned the property or paid the money (to the extent known). If the employer does not provide the required notice in a timely fashion, then no deduction is permitted. 

If the employee returns the property or repays the money within 14 days of the employer’s notice, then, if the employer already has made the deduction, it must repay the employee the amount of money it deducted. The employer must make the repayment within 14 days of when the employee returned the property or paid back the money. Employers may view the process as a 10/14/14 rule:

  • 10 calendar days: The employer’s window after separation to determine that money or property was not returned by a departing employee and to give the departing employee notice of a deduction with a breakdown of the value of the property or money;
  • 14 calendar days: The amount of time the departing employee has after receiving notice to return the property or repay the money in order to recover the deducted wages;
  • 14 calendar days: The amount of time the employer has to repay the amount of wages deducted from the departing employee’s final paycheck if the departing employee timely returns or repays property or money.

Revised INFO #16 provides a new example of how this process will work starting in 2023. 

Example L. The employer provides a cell phone to an employee. It’s agreed that the employee has to give the phone back when their job ends. In 2023, the employee quits and doesn’t return the cell phone. If the employer doesn’t provide the notice described above, then it can’t deduct from the employee’s final paycheck for this issue. If the employer provides a notice with the required contents, in the required timeframe, then it can deduct the phone’s replacement value (assuming the deduction does not take the employee’s wages below the applicable minimum wage). If the employee returns the phone within 10 days of the employer’s notice, then the employer must pay the employee back for the deduction (within 14 days of getting the phone back).