On July 1, 2021, the Virginia Overtime Wage Act (“VOWA”) will go into effect. Previously, employers in Virginia only had to worry about the federal Fair Labor Standards Act (FLSA). But now, Virginia has added its own law, subjecting Virginia employers to greater liability for violating state overtime pay standards by allowing for class action suits, expanding the statute of limitations, increasing damages in certain situations, and creating a dramatic pitfall for employers of non-exempt salaried employees.
Some Highlights of the New Law
- The VOWA increases the default statute of limitations to three years for all claims under the statute; whereas under the FLSA the default limitations period was two years and three for only “willful” violations.
- Double damages, not ½ time, will now be awarded as the baseline in employee misclassification cases.
- The VOWA, like the FLSA, authorizes class actions, increasing potential liability for damages.
The “Regular Rate” Pitfall
Both the FLSA and the VOWA require employers to pay 1.5 times an employee’s regular rate of pay for any hours worked in excess of 40 hours in a workweek. Consequently, under both laws employers must make sure to correctly calculate an employee’s “regular rate.”
Where the two laws diverge is how to compute the regular rate for salaried, non-exempt (i.e., entitled to overtime) employees. This would arise in situations where either the employer is paying an employee under the “fluctuating workweek” method (i.e., fixed salary for all hours worked in a workweek) or in situations where an employer has misclassified a worker as exempt from overtime.
- Under the FLSA, the regular rate of pay is simply all pay/remuneration divided by all hours worked in a workweek. This includes any non-discretionary bonuses, commissions, and so forth on top of an employee’s salary or hourly wages for the week.
- Under the VOWA, the regular rate of pay for salaried employees is calculated as one-fortieth (1/40) of all pay for the workweek (so their weekly salary plus any non-discretionary bonuses, commissions, etc. for that week), regardless of how many hours over 40 they actually worked.
Increased Statute of Limitations Period and Damages
The FLSA generally imposes a two-year statute of limitations period. The default statute of limitations period of VOWA, however, is three years which obviously creates a greater period of exposure for employers.
Under the FLSA, double damages (i.e. liquidated damages equal to the amount of unpaid overtime wages, on top of the original damages for those overtime wages) can be avoided if the employer can show that it acted by good faith mistake in believing it was acting properly under the law. Thus, assuming good faith mistake, an employer would only owe the wages owed without doubling.
But under VOWA, there is no such defense—all violations are subject to double damages. Furthermore, “knowing” violations—that is, those not undertaken due to a good faith mistake—will actually be subject to triple damages, rather than double like they are under the FLSA.
Example
Sally has been improperly (but unintentionally) classified as a salaried, exempt employee by her employer, ACME, for the last three years. Sally is paid $600 a week and regularly works 50 hours a week each week of the year. Here is how you would calculate Sally’s regular rate and overtime pay, and ACME’s liability to Sally under the two laws.
Under the FLSA: Sally’s regular rate is $12 an hour ($600 ÷ 50 hours)
Since Sally has already received “straight time” for all 50 hours she worked in the workweek, she would only be entitled to additional “half time” of her regular rate, i.e., $6 ($12 ÷ 2) for each of the 10 hours she worked in excess of 40.
Sally’s owed overtime pay = $60 ($6 x 10 overtime hours)
Since ACME in good faith mistakenly misclassified Sally as an exempt employee, ACME would owe Sally overtime for the previous two years in the amount of $6,240 ($60 x 104 weeks).
Under the VOWA: Sally’s regular rate is $15 an hour ($600 ÷ 40)
Unlike the FLSA which would permit ACME to pay Sally “half time” for the 10 hours she worked over 40, Sally’s overtime rate is computed by multiplying her regular rate by 1.5, or: $15 x 1.5 = $22.50.
Thus, Sally’s owed overtime pay = $225 ($22.50 x 10 overtime hours)
Since the VOWA has set as its default a three-year lookback at double damages (even for unintentional misclassifications), ACME would owe Sally $70,200 ($225 x 156 weeks x 2).
Of course, this increase in liability would be even more pronounced if Sally and other employees pursue a claim simultaneously in a class action suit, which employees will be able to do now under the VOWA.
Audit Your Compensation Classifications and Pay Practices Now!
Attorneys who sue employers would be foolish not to take advantage of Virginia’s new overtime laws. Consequently, it is quite likely that there will be a noticeable uptick in wage/hour lawsuits filed against Virginia employers. Thus, it is imperative that Virginia employers immediately undertake an audit of their employee classifications and overtime pay practices to ensure compliance with the new law.
— If you have further questions or concerns or would like assistance in evaluating your business’s potential exposure under this new law or auditing your pay practices, please contact:
Genevieve Bradley Sean Gibbons
703-485-3531 804-441-8442
