Effective July 1, 2021, Virginia employers must ensure that their pay practices comply with a new stand-alone overtime law called the Virginia Overtime Wage Act (“VOWA”). VOWA largely tracks the federal Fair Labor Standards Act (“FLSA”) in that it incorporates most FLSA exemptions and requires employers to pay 1.5 times a nonexempt employee’s regular rate of pay for all hours worked in excess of 40 hours each workweek. However, VOWA and the FLSA differ in several ways.
Determining an Employee’s Regular Rate of Pay
VOWA’s most significant divergence from the FLSA is the statute’s formula for calculating a nonexempt employee’s regular rate of pay.
For nonexempt employees paid on an hourly basis, the regular rate is the employee’s hourly rate plus other non-overtime wages paid or allocated to that workweek (e.g., commissions or bonuses), minus any applicable federal exclusions divided by the total number of hours worked in that workweek.
Employers should note that VOWA’s formula will necessarily result in larger recoveries for misclassified workers, especially when the higher overtime rate is extrapolated over an entire limitations period or across multiple employees proceeding collectively—an option that is now available to Virginia employees pursuing wage claims thanks to last year’s amendments to the Virginia Wage Payment Act.
Overtime Exemptions Under VOWA
VOWA creates some ambiguity regarding whether Virginia employers may continue to rely on certain FLSA overtime exemptions. Although VOWA’s definition of “employee” appears to incorporate most FLSA overtime exemptions, a later section limits the available exemption defenses to only the executive, administrative, professional, and outside sales exemptions, and certain transportation-related exemptions. See Va. Code § 40.1-29.2(A) and (D).
Extended Statute of Limitations for Overtime Claims
VOWA provides a three-year statute of limitations for aggrieved employees to bring an overtime claim, regardless of the circumstances. In comparison, the FLSA provides a two-year statute of limitations for overtime violations, or three years if the violation was willful. The extended statute of limitations will not have immediate practical effect, however, because DOLI has clarified that it cannot investigate claims brought before July 1, 2021.
Expansion of Available Damages and Remedies for Overtime Violations
The FLSA provides liquidated damages equal to the amount of unpaid overtime wages. An employer may avoid such “double damages” if it can show that it acted in “good faith” and that the employer had “reasonable grounds” for believing its actions complied with the requirements of the FLSA.
Under VOWA, however, all overtime wage violations are subject to double damages, plus pre-judgment interest of 8 percent per year. Further, VOWA does not offer a “good faith” defense, but instead permits treble damages, and the same pre-judgment interest and reasonable attorney fees and costs, where the employer (i) had actual knowledge that it failed to pay the overtime wages due or (ii) acted in deliberate ignorance or reckless disregard as to whether it was paying all overtime wages owed.
What Virginia Employers Should Do Now
The increased potential wage and hour liabilities mean that Virginia employers should review their overtime pay practices and exemption classifications. Specifically, Virginia employers should review their employee classifications and consider whether it makes practical sense to pay all nonexempt employees on an hourly, rather than salary basis.