Colorado quietly made certain payroll mistakes more expensive. While the core worker classification rules remain the same, enforcement and penalties have changed significantly, increasing the financial and operational risk for employers.
The most common trigger is worker misclassification: a contractor relationship that begins appropriately but, over time, starts to function like employment. Under Colorado’s updated wage enforcement framework, the cost of getting this wrong is now far higher than many employers expect.
These changes are already in effect for Colorado employers.
Key Takeaways for Colorado Employers
• Worker classification rules did not change under Colorado law.
• Penalties and enforcement authority did change.
• Misclassification can now trigger state civil fines of up to $50,000 per worker.
• These fines are separate from unpaid wages and federal penalties.
• Enforcement is handled by the Colorado Department of Labor and Employment, through the Division of Labor Standards and Statistics.
Before 2025: How Misclassification Was Handled
Historically, Colorado addressed misclassification primarily through wage recovery rather than standalone penalties. If a worker was misclassified, enforcement typically focused on making the worker whole rather than issuing separate fines.
Employers were commonly exposed to:
• Back wages or unpaid overtime
• Wage penalties tied to amounts owed
• Potential tax or unemployment consequences
There were generally no structured, high-dollar stand-alone civil fines under Colorado wage law specifically targeting misclassification itself. Risk was usually limited to what should have been paid.
After 2025: What Changed
Colorado strengthened wage and hour enforcement by adding clearer penalty authority at the state level with House Bill 25-1001. The state now treats misclassification as a distinct enforcement issue when it is willful and affects wages or overtime obligations. They can assess direct civil fines per worker, separate from wages owed, creating a much higher cost of noncompliance.
Under current Colorado law, penalties may include:
• $5,000 for a willful violation
• $10,000 if not corrected within 60 days of notice
• $25,000 for a second willful violation within five years
• $50,000 for a repeat willful violation not corrected within 60 days
Did Federal Misclassification Law Change?
No. Federal worker classification standards and enforcement remain the same.
Federal agencies continue to focus on:
• Minimum wage and overtime compliance under the Fair Labor Standards Act (FLSA)
• Payroll tax liability, penalties, and interest assessed by the IRS
• Unemployment insurance and workers’ compensation coverage
Misclassification findings at the state level often trigger parallel federal exposure, meaning employers may face consequences from multiple agencies for the same classification issue.
How Colorado Enforces Misclassification Now
Colorado’s enforcement approach now extends beyond wage recovery, as the Division of Labor Standards and Statistics administers expanded wage and hour enforcement tools.
The state has expanded its ability to publicize violations, escalate unresolved cases, and handle larger claims through the administrative process.
Current enforcement tools include:
• Public posting of certain violations
• License and permit notifications
• Larger state-handled wage claims
• Limited penalty relief in narrow circumstances
What matters most is how the relationship works in practice. If day-to-day duties no longer support a contractor classification, penalties can still apply. Journey Payroll & HR works directly with Colorado employers on payroll, worker
classification, and wage and hour compliance under both state and federal law.
Why This Matters for Local Businesses
Most misclassification issues do not come from intentional abuse. What Journey Payroll
& HR sees is they commonly result from:
• Contractors gradually working more like employees
• Job duties evolving beyond the original agreement
• Legacy classifications that were never revisited
Under Colorado’s updated law, these common scenarios now carry much higher financial
risk than in prior years.
What Colorado Employers Should Do Now
Colorado employers should consider:
• Reviewing all 1099 contractor relationships
• Confirming current job duties still align with contractor classification rules
• Documenting classification decisions and updates
• Ensuring payroll and HR systems reflect current Colorado law
Proactive review is far less costly than responding after enforcement begins.
About the Source
This article was prepared by Journey Payroll & HR, a Colorado-based payroll and human
resources firm that helps employers navigate wage and hour compliance, worker
classification, and state-specific employment laws. It is provided for educational
purposes and reflects Colorado wage-and-hour enforcement as of 2025–2026