The Virginia Overtime Wage Act went into effect on July 1, 2021, and the new law can significantly impact how Virginia employers calculate overtime pay and increase liability for failure to pay overtime wages properly. Although the new law has similarities to the federal Fair Labor Standards Act (FLSA), the Virginia law is sufficiently distinct from the FLSA such that employers may need to modify their overtime compensation structure for certain employees and account for the increased overtime liability.
One of the most immediate changes affecting Virginia employers under the new Act is that employers will need to apply a new regular rate calculation for salaried employees. Under the new Virginia law, regular rate calculation for employees paid on an hourly basis will remain relatively consistent with the FLSA – regular rate will be determined by dividing employee compensation by the number of hours an employee worked in a workweek. Under the new Virginia law, however, instead of calculating salaried employee regular rate based on the number of hours worked in a week, regular rate is calculated using a consistent “one-fortieth of all wages paid for a workweek.” A smaller divisor could mean a significantly higher regular rate for salaried employees, which can result in a higher overtime rate. As an example, if an hourly employee were paid a total of $2,000 for 60 hours in a workweek, his or her regular rate would be $33.33, and his or her overtime rate would be approximately $50. If a salaried employee were paid a fixed salary of $2,000 for the same 60 hours, on the other hand, his or her regular rate under the Virginia law would be $50, and his or her overtime rate would be $75.
If an employer pays employees on a salary basis for a 40-hour workweek, then pays employees overtime based on the total number of hours they worked that week, the employer will need to change the way it calculates the regular rate for those employees. Under this factual scenario, the employer should also consider switching these employees to an hourly compensation structure to avoid the increased regular rate.
The Act also appears to have targeted employers who misclassify salaried non-exempt employees as exempt, exposing these employers to greater liability. Misclassification of employees can occur when an employer incorrectly assumes that, because an employee receives a salary, the employee is subject to overtime pay requirements. Simply paying employees on a salary basis, however, does not necessarily make them exempt; it is just one part of a multi-factor analysis. The new Virginia law increases the potential overtime liability for employers who misclassify employees as exempt since an increased regular rate for salaried employees under the Virginia statue can result in increased overtime pay liability if an employee were to bring a claim based on misclassification as an exempt employee.
In addition to the changes in the new law regarding regular rate calculation, the new law is not currently clear as to whether employers will be able to pay employees through alternative payment methods, such as a fluctuating workweek or day rate. Until further guidance is available, Virginia employers may want to reconsider paying Virginia employees through these alternative payment options.
In addition to establishing a new method for determining the regular rate for non-exempt, salaried employees, the new Act imposes greater risks for employers because of an expanded limitations period and remedies for claimants. Under the FLSA, the limitations period for overtime claims begins upon the filing of the claimant’s legal action and looks back two to three years, depending on whether the violation was willful. Under the new Virginia law, claims may be brought within three years of the accrual of the action, regardless of whether the alleged violation was willful. The Virginia law may permit claimants to bring claims which might otherwise have expired under the FLSA and may mean a larger recovery period.
In addition, the new Virginia law does not provide for the exclusion of liquidated damages. Under the FLSA, if an employer could demonstrate that an act or omission was in good faith and that the employer had reasonable grounds for believing that the act or omission was not a violation of the FLSA, liquidated damages could be eliminated. The new Virginia law, on the other hand, permits liquidated damages as a default remedy which an employer cannot eliminate by demonstrating good faith. In addition, the new Virginia law expands the potential recovery against employers by allowing claimants to recover triple the amount of unpaid wages if it can be shown that the employer knowingly failed to pay overtime.
Brendan F. Cassidy is an attorney at Praemia Law, PLLC. This article is for general informational purposes only and should not be relied upon or regarded as legal advice. Please contact Brendan Cassidy at email@example.com or 703-399-3603 concerning particular facts and circumstances.