Understanding changes to Colorado’s minimum wage

Historically, Colorado’s minimum wage has been among the highest in the United States which has had a corollary effect on their economy. In 2021, US News and World Report ranked Colorado the second-best economy in the United States.

History of minimum wage increases in Colorado

Since the mid-2000s, the state of Colorado has sought to raise its minimum wage rate to ensure employees are able to make a living wage and contribute in more meaningful ways to their communities while being able to better provide for their families. In 2006, the state constitution was amended to raise the minimum wage from the national level of $5.15 to $6.85 an hour. 

Colorado’s legislators then passed Amendment 70 in 2016 which set in motion an increase of 0.90¢ per year until the minimum wage reaches $12 per hour. This incremental increase may seem small on paper but allowed Colorado to reach its goal by 2020 and goes a long way towards improving the quality of life for Coloradans and boosting the state’s economy.

Colorado did not halt increases to their minimum wage once reaching the $12.00 hourly wage mandated in Amendment 70. In 2021, Colorado’s Department of Labor and Employment determined that annual increases be set based on data from the state’s Consumer Index. This brought the minimum wage to $12.30 in 2021.

Tipped minimum wage increases

In the hospitality industry, wait and bar staff receives tips on top of their hourly wage. For this reason, it is common for American service industry employees to receive less hourly pay than non-tipped employees paid an hourly wage.

For employees who receive tips, the difference is that employers pay less, however, only $3.02 can be used to offset tips. For example, the minimum wage in 2021 is $12.32 meaning that employers are required to pay employees $8.98 per hour. Tip pooling, where tips are collected and redistributed to other staff members such as dishwashers or managers is legal in Colorado. 

Minimum Wage and Tipped Minimum Wage in Colorado

Source: https://cdle.colorado.gov/wage-and-hour-law/minimum-wage

The Biden Administration's decision to increase the federal minimum wage for federal workers will affect over 550,000 Coloradans in 2024, where it is suspected to surpass Colorado’s annual wage increase.  

While the state of Colorado has a minimum wage rate, a law in 2019 granted each municipality the ability to set minimum wage rates. Because the cost of living varies across the state, a “one-size fits all approach” to wages could negatively affect rural communities. By allowing municipalities to set and manage minimum wages, it ensures that employees are earning a living wage in cities where the cost of living is substantially higher. Denver’s minimum wage rate is higher than in other places, at $14.77 in 2021. 

Support for minimum wage has changed due to pandemic

While Amendment 70 was debated, hundreds of businesses publicly supported legislation to increase minimum wages for 3 main reasons:

• Better employee retention: Higher wages make employees happy and encourages them to stay employed longer. The longer they stay, the more they know which usually makes them better employees.
• Lower turnover: When employees are satisfied, they are less likely to quit or look for other opportunities. This translates into businesses saving money on hiring and training new staff.
• Better quality talent: Better wages tend to attract and retain top talent.
• Positive impact on the local economy: When people have more disposable income, they are able to put that money back into the local economy.

However, with the pandemic hitting small businesses hard, minimum wage increases have been daunting for businesses in Colorado, especially the restaurant industry.

In a survey conducted by the Restaurant Association in September 2020, 20% of Denver restaurants were considering closing and 59% were thinking about reducing staff. In order to stay afloat, many businesses have had to limit their hours of operation, reduce their staff size, or increase prices - which they fear will affect their business negatively. 

More changes coming

While the pandemic has taken a toll on small businesses, it has also given rise to more employee-centric policies. Business owners in Colorado can expect more changes coming in 2022.

Employers will need to comply with new laws pertaining to:

• Compensation and benefits transparency
• Unemployment Insurance contributions 
• Paid sick leave 
• Family leave