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Colorado Supreme Court Rules “Holiday Incentive” Pay Must Be Calculated in Overtime Pay

September 10, 2024

In Hamilton v Amazon.com, a Colorado Wage Act case, a former Amazon warehouse worker brought a suit against Amazon alleging Amazon failed to pay him the correct amount of overtime during time periods he also worked on a holiday where he received “holiday incentive pay” – which was time and a half. After losing at the dismissal stage in Colorado Federal Court, he appealed to the Tenth Circuit, which certified the following question to the Colorado Supreme Court:

Whether Colorado law includes or excludes holiday incentive pay from the calculation of “regular rate of pay” under 7 Colo. Code Regs. § 1103-1:1, secs. 1.8 and 1.8.1.

The Supreme Court held that “holiday incentive pay is included in the calculation of the “regular rate of pay” under Rules 1.8 and 1.8.1.

Under Colorado law, employers must pay employees overtime at a rate of one and one-half times their regular rate of pay when they work more than 40 hours in a workweek. Where employees are paid different hourly rates at different times, Rules 1.8 and 1.8.1 of Colorado Overtime and Minimum Pay Standards Order # 39 (“COMPS”) govern how the employees’ overtime pay is calculated.

Rule 1.8 states: “Regular rate of pay means the hourly rate actually paid to employees for a standard, non-overtime workweek.”

Rule 1.8.1 states:

Pay included in the regular rate. 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.

The Supreme Court stated that the calculation of the regular rate of pay “must reflect all payments which the parties have agreed shall be received regularly during the workweek, exclusive of overtime payments” and noted that “those payments include, as pertinent here, shift differentials, which, as noted above, are defined to comprise the scenario in which “an employee receives a higher wage or rate because of undesirable hours or disagreeable work.” The Court then distinguished between overtime premiums and shift differentials stating that shift differentials are “extra pay” because of the character of the work done or time at which the work was done, as opposed to an overtime premium which is extra pay for work performed during a workweek or workday.

The Court reasoned that holiday incentive pay is included in the calculation of the regular rate of pay for two reasons, because holiday incentive pay falls within the plain and ordinary meaning of “all compensation paid to an employee” under Rule 1.8.1, and because “holiday incentive pay” is a shift differential under Rule 1.8.1.

Finally, the Court declined to read Colorado’s law (specifically Rules 1.8 and 1.81) harmoniously with the FLSA stating that Colorado law is not identical or substantially similar with respect to this issue.

Takeaway

Colorado employers must immediately look at their policies with respect to calculating overtime and ensure that they are properly calculating the “regular rate of pay” to include all payments the employee received regularly during the workweek, including shift differentials. Of course, large employers will see the biggest impact, but small employers must also be aware of this ruling and adjust accordingly. Employers should prepare to have employees request re-calculation of their overtime wages paid in the past, and prepare to immediately implement overtime calculation in line with this case.

This publication is intended for general informational purposes only and does not constitute legal advice or a solicitation to provide legal services. The information in this publication is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this information without seeking professional legal counsel. The views and opinions expressed herein represent those of the individual author only and are not necessarily the views of Clark Hill PLC. Although we attempt to ensure that postings on our website are complete, accurate, and up to date, we assume no responsibility for their completeness, accuracy, or timeliness.

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