Virginia's New Overtime Wage Act Continues a Trend of Employee-Sided Legislation

On March 30, 2021 Governor Northam signed the “Virginia Overtime Wage Act” into law.  This new legislation, which goes into effect on July 1, 2021, continues the Commonwealth’s pro-employee push and will create new wage and hour requirements and legal liability for employers in an area traditionally regulated under federal law.

Calculating the Regular Rate of Pay

The most significant impact of this legislation relates to how employers calculate the “regular rate of pay” for establishing wage and overtime requirements for non-exempt employees who are paid a salary.  Under federal and prior-Virginia law, an employee’s regular rate of pay constitutes their hourly rate and any additional compensation received in a workweek. This remains the same under the new law for Virginia employees paid on an hourly basis. The regular rate of pay for employees paid on a salary basis, however, will be calculated as one-fortieth of all wages paid for that workweek even where the employee regularly works more hours. The practical impact of this change is to bar employers from utilizing the FLSA’s “fluctuating work week method” or other straight time methods for calculating wages for non-exempt employees.

The change will create potential liability for employers who misclassify employees as exempt because a higher regular rate of pay would be used to calculate damages, and available recovery would be “time and a half” the regular rate for all hours the employee worked over forty in a workweek.

Expanded Liability for Employers

The law also provides new tools for employees filing wage and hour claims. Under the FLSA, the limitation period is two years, absent evidence that the violation was willful. The Act makes the limitation period three years under Virginia law regardless of willfulness. A successful employee can also recover liquated damages (double the amount of unpaid wages) regardless of whether the violation was made in good faith. A knowing or reckless violation will result in treble damages.

Next Steps for Virginia Employers

It is now more important than ever that all Virginia employers carefully review their policies and pay practices to ensure compliance with the Act (as well as with federal wage and hour requirements). Employers should consider conducting wage and hour audits to ensure both proper classification of employees, as well as that their method of payment and calculating overtime is appropriate under the new law.