June 2026 – Colorado Misclassification Penalty Change

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June 2026 – Colorado Misclassification Penalty Change

OVERVIEW

Colorado has enacted a new penalty framework that increases the consequences for employers that misclassify employees as independent contractors or other nonemployees where classification may affect wage-and-hour payment or reporting obligations. This change is a broader expansion of Colorado wage-and-hour enforcement.

WHAT CHANGED?

Colorado employers should be aware of a significant increase in penalties for worker misclassification. Under new legislation, if an employer is found to have misclassified an employee as a nonemployee in a way that may affect wage-and-hour payment or reporting obligation under state, federal, or local law, the employer may be subject to substantial fines on a per-worker basis.

The new penalty amounts are:

  • $5,000 per worker for a willful violation
  • $10,000 per worker if the violation is not remedied within 60 days of notice
  • $25,000 per worker for a second or subsequent willful violation within 5 years; and
  • $50,000 per worker for a second or subsequent willful violation that is not remedied within 60 days of notice

HOW IS COLORADO ENFORCING?

Colorado’s enforcement now extends beyond wage recovery. The state is enforcing though the following measures:

  • Public posting of certain violations
  • License and permit notifications
  • Limited penalty relief

WHAT COLORADO EMPLOYERS SHOULD KNOW

Colorado employers should assess the following for all employees and nonemployees:

  • Reviewing all 1099 contractor relationships
  • Confirming job duties still align with contractor classification
  • Documenting any classification decisions and updates
  • Ensuring payroll and HR systems reflect current Colorado law

CONCLUSION

For Colorado employers, worker classification now carries materially greater wage-and-hour risk. With penalties applying on a per worker basis and may be imposed in addition to other consequences, employers should treat independent contractor classifications as an area of heightened compliance exposure.