Colorado Employment Agreements

Introduction

Employers all over the United States are subject to regulations which ensure the smooth running of business in line with state laws. The goal is to ensure that all parties in an employer-employee relationship have their rights and interests protected.

If you’re a small and medium employer operating in Colorado, this guide will highlight the crucial information that needs to be included in the Colorado employment agreement (your Colorado employment contract) for your W-2 employees.

Section 1- Local Employment Laws

In the course of managing daily small business operations, it’s easy to ignore the administrative requirements of the business. And these can quite often relate to the managing of employer-employee relationships. Employment laws in Colorado are largely regulated by the state law and all small and medium sized businesses (SMBs) need to remain in complete compliance at all times.

Unlike other states that tend to lean towards Federal Law regulations, Colorado employment law aims to protect the rights of the employees more. There are particular clauses that must be included in all Colorado employment agreement requirements due to the strict wage, overtime, break, sick leave, and final pay rules.

One of the unique protections afforded to employees is the right to paid sick leave under the Healthy Families and Workplaces Act (HFWA). The Colorado Department of Labor and Employment, (CDLE) has ensured that all employers pay their employees accrued sick leave and public health emergency leave.

Employers must utilize transparent systems when paying their employees and ensure pay in terms of the Equal Pay for Equal Work Act. The need for transparency is widely interpreted in the Act, although the general requirement is that employers should include all information related to pay and benefits when advertising.

Employers generally have a right to operate an employment relationship without having a written employment agreement. However, they should not undermine the importance of a well written employment agreement in the event of an internal labor law dispute. A proper employment agreement should address all matters that are listed in the mandatory checklist highlighted in section 7 of this guide.

Section 2- Applicability

Any employers who run their own business with a total of 100 or less employees qualify to fall into the category of a small and medium-sized business (SMBs). This section will help employers determine whether this guide applies to their businesses. Employers must know not every employer-employee working arrangement is covered by this guide.

This guide applies to all SMBs hiring W-2 employees, i.e. employees that need an IRS W-2 form to file taxes at the end of every financial year.

Employers must distinguish between an employee and independent contractor; an employee is a worker whose work hours and work scope are fully controlled by an employer, while an independent contractor maintains their autonomy by regulating their own work hours. This guide does not apply to independent contractors. (See also: employee vs independent contractor Colorado and Colorado worker classification rules.)

There are exceptional circumstances where an employee works remotely, the Colorado employment laws will still apply to their employment status even if the physical offices are located out of state. However, if an employee relocates out of state and keeps working for a company in Colorado, then multiple state laws apply. The employer in this instance should consider hiring a lawyer for advice on how to deal with inter state laws.

Section 3- Colorado Legal Landscape Snapshot

This section contains important legislative updates that all SMB employers need to be well versed with. Each employer should ensure that legal obligations are met in their workplace in accordance with Colorado state requirements. These legal requirements cannot be excluded by means of any contract or verbal agreement.

Since these laws offer guidance to employee rights, a copy of the following legal instruments should always be printed and hang on a Notice board in the workplace;

● Colorado Overtime & Minimum Pay Standards (COMPS Order)
The COMPS Order currently sets out a minimum wage of $14.81 per hour, calls for 30 minutes uninterrupted meal periods, regulates rest periods and sets out employer responsibilities. Employers cannot use employment agreements to misclassify employees and withhold benefits accorded to them under COMPS.

● Healthy Families and Workplaces Act (HFWA)
All employment agreements need to clearly address the employees’ paid sick leave days which should be calculated according to the employee’s accrued work hours. Employers are also required to offer additional paid sick leave in exceptional circumstances where there’s a public health emergency. The Act in fact requires that an employee accrues 1 hour of paid sick leave for every 30 hours of work.

● Equal Pay for Equal Work Act (EPEWA)
This legislation specifically calls for transparency especially when advertising for new job postings. An employer is required to publish the pay rates and refrain from asking potential employee about their previous earnings. Employment agreements must contain the same pay for the same type of work.

● Colorado Wage Act
This Act sets strict guidelines on how employers should pay wages, commissions, overtime and bonuses to their employees during the course of their employment. It also regulates final pay requirements that employers must meet after termination of an employee. Employers should pay any monies due to an employee within 24 hours of termination of employment. However, if an employee resigns, they should receive all wages and commissions due to them on the next regular payday.

● Colorado Anti-Discrimination Act (CADA)
The CADA contains a list of all grounds under which discrimination is prohibited in a workplace including; sex, gender, race, pregnancy etc. It also sets out procedural requirements to be followed in the event of workplace harassment to ensure mediation and conciliation. Employers must avoid bias throughout the process of hiring and during the course of employment. As small business owners, employment contracts should not contain unnecessary waivers that can be loosely interpreted to be discriminatory.

● Colorado Non-Compete Clauses
Non-compete agreements contain clauses that restrict a former employee from working with a competing business in the same industry. These clauses have been confirmed to hold no legal basis in Colorado, of course with a few exceptional circumstances. These reforms were implemented in 2022 under the Restrictive Employment Agreements Act. (See: non compete Colorado, Colorado non compete law, Colorado restrictive covenant, and are non competes enforceable in Colorado.)

● Mandatory arbitration for discrimination/harassment claims
Employers are restricted from including arbitration clauses that limit employees from seeking other legal remedies when resolving workplace disputes.

Section 4-What’s Different in Colorado

Highlighting the different applicable employment laws in the previous section was to help employers identify the key areas of risk. This section provides practical examples and guidelines to employers on how to navigate these strict requirements;

● Employers should put payroll systems in place to document all wage payments and describe the exact manner of payment for all employees. There should also be monitoring of the minimum wage, this changes often every year and any non-compliance is punishable by the CDLE.

● The exceptions for having non-compete clauses are circumstances when a business is being sold and when the employee in question earns above a certain threshold. As of 2022, this threshold is currently set at an amount equal to or greater than $101,250 at the time the agreement is entered into. An employer can however opt to use a carefully worded confidentiality agreement if they believe they have some business secrets to protect. This kind of agreement cannot be construed to be a non-compete clause.

● Instead of using arbitration clauses, employers should draft anti-harassment policies that describe which conduct constitutes harassment. They should also provide internal procedural steps for dispute resolution in case of workplace harassment and discrimination.

● The strict rest periods and overtime laws can be navigated by setting up a reliable clock in system. It also helps to teach employees how to calculate their overtime hours. Managers should never interrupt employees during their break periods.

Section 5-At-Will Employment Status

Colorado remains one of the states that allow Colorado at will employment status, which basically allows either party to an employment agreement to terminate the contract with or without valid reason.

In most cases, employers often misuse this at will employment Colorado status and fail to follow appropriate legal procedures before or after termination of employment. The at-will employment status doesn’t exempt employers from lawful obligations under the various employment laws we discussed in section 3.

In rare cases, employers’ written agreements during probation periods may instead restrict employee’s rights under the at-will status. Care should be taken when drafting clauses that make it seem like the employee’s job security is at stake until the end of probation. Employers should honor the employee’s right to terminate employment even during the probation period.

Section 6-Colorado Scenarios (Risk Focused)

The previous sections have established the legal framework to be followed by Colorado employers. This section highlights some practical scenarios where employers can find themselves in trouble with the law due to non-compliance;

• Scenario 1 -Vague Job Duties leading to Wrongful Termination Claim
An employee reports their supervisor to the manager claiming that they were forced to work through their lunch hour without an option of taking a break. However, the manger alleges that the employee should be more flexible during peak season and therefore terminates employee’s contract on basis of failure to perform work defined in the job scope. The employee files claim under the COMPS Order for failure to provide breaks and also claims termination was retaliatory.
How employer could have avoided this: Training managers and ensuring they do not interrupt the employee’s rest times. Employer should also have a written employment contract that entails when and where to take rest during the course of employment.

• Scenario 2 - No written compensation terms
An employer finds an employee acting inappropriate during work hours and immediately terminates their employment. The employer however fails to find proper record of the employee’s overtime hours and therefore cannot pay them within the 24-hour window after termination. The former employee files a claim with the CDLE claiming unpaid wages under the Colorado Wage Act and statutory compensation.
How employer could have avoided this: The employer should have a detailed employment agreement with clauses that set out manner of payment of final pay upon termination. They should also keep written information of all wages and commissions of the employee during the course of employment.

• Scenario 3 - Remote worker disputes applicable law
A remote worker whose company is located out of states chooses to take a work break in accordance with Colorado COMPS Order and it’s requirements for breaks. However, her employer out of state claims that she is not entitled to break times under the COMPS Order since the company follows federal law regulations of the state it’s physically located in. The employee files a complaint with the CDLE and claims the Colorado wage laws need to be applied. The Department of employment agrees because the scope of her work duties all take place in Colorado.
How employer could have avoided this: The employer should ensure internal policy training for managers; they need to be taught to implement Colorado state laws for their employees that work in Colorado.

Section 7- Colorado Checklist

Employers can make a copy of this checklist and use it as a guide when drafting employment contracts.

• Job title + documented responsibilities
• Compensation structure (EPEWA compliant)
• Pay transparency disclosures
• Work hours + meal/rest break requirements
• Overtime eligibility under COMPS
• Paid sick leave (The HFWA sets the minimums)
• Benefits disclosure (if applicable)
• At will employment acknowledgment (This should be clearly stated)
• Confidentiality obligations
• Expense reimbursement policy
• Anti-discrimination and harassment policies (CADA)
• Termination procedures
• Final pay timeline (mandatory)

LEGAL TIP FROM THE EXPERTS

“Colorado employers often assume a generic template is enough. Most disputes we see come from agreements that don’t reflect Colorado-specific wage, leave, and termination rules.”

Tamara Armstrong — SMVRT Legal Legal Contributor

Section 8-What to Include in a Colorado Employment Agreement

Employers should include the following sections when drafting employment contracts.

Section 9-Colorado Mistakes to Avoid

Employers should look out for these common mistakes:

• ❌ Including unlawful non-compete clauses
• ❌ Suggesting probationary periods alter at will status
• ❌ Ignoring meal/rest break rules under COMPS
• ❌ Failing to include pay transparency language
• ❌ Missing or late final paycheck issuance
• ❌ Arbitration clauses that violate Colorado discrimination laws

Section 10-Colorado FAQs

1. Are employment agreements required in Colorado?
   Employment agreements are merely recommended; it’s not a must to have one.
2. Can Colorado employers fire employees at will?
   Yes, employers can fire employees at will, provided that they follow the right procedures according to Colorado Employment laws.
3. Do Colorado employees always get overtime?
   Not all of them, only non-exempt employees are entitled to overtime under the law.
4. Are non-competes enforceable in Colorado?
   Only in exceptional circumstances otherwise they are void when it comes to normal employees who are not earning above certain thresholds.
5. Does Colorado law apply to remote workers?
   Yes, provided the employee physically works within the jurisdiction of Colorado.
6. What are Colorado’s paid sick leave rules?
   These are regulated under the Healthy Families and Workplaces Act. All employers must provide for paid sick leave whether they run small or large businesses.
7. What happens if final pay is late?
   The employer may be sued by former employee and be required to make statutory payments under the Colorado Wage Act.

Section 11-Conclusion

The operation of a small and medium sized enterprise in Colorado requires strict compliance to the state laws governing the employer-employee relationship. The state law leans towards the protection of employee rights as opposed to other states that follow the federal employment laws.

This sums up the risk factors that all SMB employers in Colorado should look out for during the operation of business;

• Payment of overtime is regulated under COMPS order
• Paid sick leave is mandatory under the HFWA
• Pay transparency regulated under the EPEWA
• Final pay rules under the Colorado Wage Act
• Anti-discrimination and anti-retaliation rules should be followed as per Colorado Anti-Discrimination Act (CADA)
• ● Remote workers’ rights need to be honored under the COMPS order
• ● Avoid misclassification of employees.

Employers need to ensure that employee rights are honored and a well written employment agreement should always be the point of departure. Not only are employee rights protected, but the employer saves themselves from expenses that would accrue from employment disputes and penalties from regulatory bodies.

Call to Action

Employers in Colorado must remain in compliance with state employment laws at all times. They must take further steps to implement practical ways of compliance, for instance; by setting up proper payroll systems, drafting anti-harassment policies and many other steps as mentioned in this guide.

Legal Disclaimer: Readers must be reminded that this guide is merely a compilation of research and therefore doesn’t constitute legal advice. If any employer needs legal advice, they should hire a labor law consultant for assistance.

Last updated date - 19 December 2025