It's Up to Localities: Will Colorado Employers See a Decrease in Tipped Minimum Wage?

Colorado Gov. Jared Polis on June 3, 2025, signed House Bill (HB) 25-1208 into law in an effort to alleviate economic stress on the restaurant industry in Colorado by permitting localities to reduce the minimum wage for tipped employees. HB 25-1208 impacts localities with minimum wages higher than the statewide minimum, such as Denver and Boulder.

Why Does the Tipped Minimum Wage Matter?

In 2024, Denver accounted for 82 percent of the 200 restaurant closures across the state. Restaurant owners have identified the increased local minimum wage as one of the significant factors contributing to their reduced profit margins. Additionally, restaurateurs blame the high minimum wage for the disparity between front and back-of-house workers, leading to increased operation costs and service fees. HB 25-1208 takes the first step in recognizing this instability by allowing localities with a higher minimum wage to increase the standard $3.02 tip credit and lower the tipped minimum wage.

What Does This Mean in a Practical Sense?

Since 2006, the tip offset in Colorado allowed employers to pay tipped employees $3.02 less than the minimum wage required in the area. Currently, Colorado's tipped minimum wage is $11.79, and Denver's tipped minimum wage is in stark contrast at $15.79.

However, effective Jan. 1, 2026, local governments with a minimum wage higher than the state minimum wage may increase the standard tip credit of $3.02 to include the difference between the local and state standard minimum wages. In Denver, for example, lawmakers may combine the $4 difference between the city and statewide minimum wage with the standard offset of $3.02, thereby allowing the city to decrease the tipped minimum wage from $15.79 to the statewide minimum of $11.79. Likewise, the City of Boulder, Boulder County and City of Edgewater may adjust their tip offsets considering the new law.

What's Next?

Polis has called "on local governments in Denver, the City of Boulder, Edgewater, and unincorporated Boulder County to take action to address the tip credit and ameliorate pay disparities between front and back-of-house workers."

Although these localities retain discretion over whether to make these changes, Polis cautioned he "will be closely watching progress in these two key jurisdictions [referring to Denver and Boulder], where restaurants are facing particular difficulties." Furthermore, he emphasized that should Denver and Boulder fail to support the restaurant industry, "the legislature may very well need to step in again, this time more assertively, next year."

Although it is uncertain when, and if, localities will act, employers with tipped employees should closely follow these changes to see what impact, if any, they may have on their ability to take increased tipped credits. Should localities fail to act before next year, employers should also keep an eye on any statewide legislation.

For further information or inquiries, please contact the authors.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.