Something to Think About…
Why “Unlimited PTO” Is a Hidden Risk for Colorado Employers
Unlimited PTO sounds like a modern, employee friendly benefit; I get it, because we actually had Unlimited PTO for many years at Journey Payroll & HR. Though in Colorado, it’s not that simple, and we had to pivot as laws changed.
We loved the idea because it showed we trusted our team. However, hidden traps in Colorado wage law mean that what happens in practice does not always align with legal requirements.
This isn’t to say you cannot do unlimited PTO, but it is a reality check for Colorado employers, considering that it’s much more complicated than you may realize, and there can be hidden potential issues that could be an expensive lesson to learn.
The Core Problem: Colorado Doesn’t Care What You Call PTO
Colorado wage law focuses on how a policy operates, not what a company labels it.
Under guidance from the Colorado Department of Labor & Employment (CDLE), once vacation or PTO is earned, it is treated as wages and generally cannot be forfeited, regardless of how the policy is described.
If time off is:
- Earned in practice
- Expected year-over-year
- Quietly limited by approval patterns
- Discouraged culturally
- Or treated differently across managers
…it may be viewed as earned compensation by the court, even if the policy says “unlimited.”
In Colorado, earned compensation is treated as wages, with strict rules around payment, timing, and penalties. And this is where many employers get blindsided.
Unlimited PTO Is Not Just a Policy, It’s an Operating System
One of the biggest misconceptions is that unlimited PTO can be solved with good drafting.
It can’t.
Unlimited PTO requires:
- Ongoing manager training
- Consistent approvals across departments
- Clear coverage expectations
- Leaders who visibly take time off
- Continuous monitoring of how the policy actually functions
Employment attorneys have noted that if an “unlimited” PTO policy misses the mark on any of these requirements, even informally (which happens more often than not), the door is open for payout obligations under Colorado wage law.
And unfortunately, that risk usually surfaces at the worst possible moment: termination, performance disputes, or employee exits.
The Common “Gotcha” Areas for Colorado Employers
- Unlimited PTO That Isn’tActually Unlimited
Most policies require manager approval, coverage planning, or performance alignment. Those controls can quietly turn “unlimited” into “restricted,” even if no one intends that outcome.
Colorado regulators evaluate reality, not intent.
As employment law resources consistently explain, once PTO becomes earned and determinable, it is protected as wages under the Colorado Wage Claim Act and must be paid when due.
- Inconsistent Manager Behavior
If one manager freely approves time off and another discourages it, the policy stops being unlimited. It becomes discretionary, which can trigger both wage and employee relations issues.
Consistency matters more than generosity.
- Quiet Cultural Pressure
When employees technically have unlimited PTO but feel unsafe using it, the benefit backfires. Over time, patterns emerge, and patterns can be interpreted as expectations.
That’s how “no accrual” turns into actual accrual.
- Termination Is Where It Breaks
Many employers only discover the risk after someone leaves.
If PTO is deemed earned:
- It may need to be paid out
- Failure to do so can trigger penalties
- Timing matters
- Good faith doesn’t erase exposure
This is where unlimited PTO becomes expensive, especially if it becomes at scale or there is a legal battle.
- Sick Leave Still Applies
Colorado’s Healthy Families and Workplaces Act (HFWA) still applies, regardless of how PTO is structured.
HFWA requires protected sick leave with specific accrual, usage, and anti-retaliation rules that unlimited PTO policies do not automatically satisfy.
Using unlimited PTO to “cover everything” without careful structure can unintentionally create compliance gaps.
- Unlimited PTO Can ConflictWithColorado FAMLI
Colorado’s Family and Medical Leave Insurance (FAMLI) program operates independently of employer PTO policies. No matter how generous a benefit may be, an employer cannot replace or override an employee’s right to use FAMLI.
This is where unlimited PTO can create problems. If PTO is truly unlimited, it’s often unclear when extended medical or family leave should transition into FAMLI. Without clear structure, employers may handle long absences informally instead of designating protected leave.
Risk increases when:
- Employees are encouraged to use PTO instead of filing for FAMLI
- Extended absences aren’t clearly classified as protected leave
- Full pay under unlimited PTO blurs FAMLI wage replacement rights
FAMLI has defined rules, timelines, and protections. Unlimited PTO does not. When an unstructured benefit overlaps with a statutory leave program, execution matters.
Unlimited PTO and FAMLI can coexist, but only with intentional coordination and manager training. Generosity does not eliminate compliance.
Why We Chose a Different Path at Journey Payroll & HR
As a Colorado based Payroll and HR company, we realized something important: Unlimited PTO didn’t reduce complexity; it moved complexity into daily operations, where mistakes are easier to make and harder to spot due to Colorado laws.
We found better ways to support a healthy, flexible culture without relying on a policy that demands near perfect execution forever.
I suggest that instead of employers asking themselves, “Should we offer unlimited PTO?”, they ask “Can we operate unlimited PTO flawlessly, consistently, and indefinitely, across every manager and every situation?”
If the answer isn’t a confident yes, there are other ways to build trust, flexibility, and retention without creating wage risk.
A Final Word for Colorado Business Owners
Unlimited PTO can work in Colorado, but it’s not a shortcut, and it’s not self maintaining.
It requires:
- Legal guidance
- Operational discipline
- Cultural alignment
- Ongoing oversight
For employers considering it, this is a path best walked carefully, with experienced counsel involved every step of the way.
In Colorado, benefits that sound simple often aren’t.
And the ones that fail usually do so quietly, until they don’t.
About the Author
Kevin Welch is the Founder and CEO of Journey Payroll & HR, the largest privately owned payroll company in Colorado, founded in 2010. He writes about workforce trends, payroll, HR compliance, and leadership from the perspective of working alongside Colorado employers every day.
🔗 LinkedIn: https://www.linkedin.com/in/kevinwelchjourney/
Kevin Welch, CEO, Founder, Shareholder at Journey Payroll & HR