The Colorado Department of Labor (CDOL) announced that “use-it-or-lose-it” vacation policies would no longer be permitted. However, they then admitted materials on the subject were “Not clear.” Now they’ve released an FAQ, which continues the confusion. Here are some takeaways:

• If you have a use-it-or-lose-it policy, it must clearly explain vacation earnings and accruals
• Definition of when vacation is earned is critical
• Value of vacation earned when an employee leaves must be paid
• If you want to change your policy, it cannot be retroactive

You could put a cap on how much vacation is earned, require employees to use accumulated vacation before additional time could be earned, and have a policy clearly stating vacation pay is not earned until employees work the specified amount of time. But until further clarification, it looks like the employee must be paid for all earned and unused vacation time.

Thanks for the overview from Fisher & Phillips, found here: http://www.laborlawyers.com/colorado-department-of-labor-clarifies-vacation-pay-position