Navigating Payroll Deductions in Colorado

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The Do’s and Don’ts of Payroll Deductions in Colorado

Payroll deductions can be complex for employers and employees, and understanding the specific regulations in your state is crucial. Colorado has certain do’s and don’ts to consider regarding payroll deductions to avoid potential legal issues. Let’s delve into some critical guidelines for employers and employees alike.

 The Do’s:

 Familiarize Yourself with Colorado Labor Laws:

Before implementing any payroll deductions, it’s essential to have a thorough understanding of Colorado labor laws about wages, deductions, and employee rights. The Colorado Division of Labor provides comprehensive resources and guidelines to help employers stay compliant.

Recently, the Colorado Wage Claim Act added that employers are required to notify employees of any deductions made from their final paycheck before the paycheck is issued. Additionally, employees must receive a copy of the deduction authorization form they previously filled out outlining the deductions. The authorization ensures transparency and compliance with state labor regulations regarding final pay and deductions.


Obtain Written Authorization:

For most deductions beyond those required by law (such as taxes and court-ordered garnishments), employers must obtain written authorization from employees. Thiswritten consent should clearly outline the deduction’s purpose, amount, and duration, ensuring transparency and preventing disputes. Verbal agreements are not permissible.


Deduct Required State and Federal Taxes:

Employers in Colorado are required to withhold state and federal income taxes, as well as FICA (Social Security and Medicare) taxes, from employees’ paychecks. Ensure accurate calculation and timely remittance of these taxes to the respective tax authorities to avoid penalties.


Comply with Wage Garnishment Orders:

If presented with a valid court-ordered wage garnishment, employers must comply with the terms outlined in the order. This may involve deducting a specified amount from the employee’s wages to satisfy debts such as child support, student loans, or unpaid taxes. Employers that fail to comply with these orders will face monetary penalties.


Implement Voluntary Deductions Consistently:

Voluntary deductions, such as contributions to benefit plans such as retirement and health insurance premiums, should be implemented consistently for all eligible employees. Ensure proper documentation and transparent communication regarding these deductions.


The Don’ts:


Make Unauthorized Deductions:

Deducting amounts from an employee’s paycheck without proper authorization is illegal in Colorado. Avoid making deductions for items such as uniforms, tools, or other business expenses unless explicitly authorized by the employee in writing and permitted by state law.


Discriminate in Deduction Practices:

It’s imperative to apply deduction policies uniformly and without discrimination. Avoid singling out certain employees or groups for specific deductions unless there’s a legitimate business reason supported by state law.


Withhold Final Paychecks Unnecessarily:

Upon termination of employment, Colorado law specifies the timeline for issuing final paychecks to departing employees. Avoid withholding final paychecks as leverage or punishment, as this can lead to legal repercussions and potential penalties.


Neglect Employee Rights to Minimum Wage:

Payroll deductions should never result in employees earning less than Colorado’s minimum wage. Ensure that deductions, when combined with wages, meet or exceed the minimum wage requirements to prevent violations of labor laws.


Fail to Keep Accurate Records:

Accurate record-keeping is essential for payroll deductions in Colorado. Maintain detailed records of all deductions, including written authorizations, amounts withheld, and dates of deduction, to demonstrate compliance with state laws and facilitate any potential audits or inquiries.


Here are some examples of permissible and impermissible deductions:


Permissible Deductions Impermissible Deductions
An employee requests a $500 cash advance. The employer advances the money, and the employee fills out and signs a deduction authorization form stating the employee will pay back the advance in two increments of $250 each. The deduction then starts on the next paycheck. An employer loans money to an employee who orally agrees that the employer can deduct the loan amount from their next paycheck; however, nothing is in writing.
The employee used their company credit card for a personal purchase of $100. The employee fills out and signs a deduction authorization form stating that $100 can be taken out of their next paycheck. The employee is a server at a restaurant, and the customers at the employee’s table leave without paying their bill. The bill cannot be deducted from the employee’s paycheck.
The employee wants to purchase a tool through the company to use at work. The employee fills out and signs a deduction authorization form stating that the employer can take the cost of the tool out of their next paycheck. The employer and employee have a written agreement saying the employee will repay the cost of employer-provided services. Still, the agreement says nothing about how the employee will make payments.

Navigating payroll in Colorado requires diligence, adherence to state laws, and clear communication between employers and employees. By following the do’s and avoiding the don’ts outlined above, employers can effectively manage payroll deductions while staying compliant and fostering transparency in the employer-employee relationship.


Are you questioning which deductions you need to withhold from an employee’s paycheck? Or has processing payroll become a challenging and time-consuming process? Reach out to Staffscapes with any questions. We are here to help you and your business grow.