LawFlash

Virginia Enacts Expansive New Overtime Law

May 07, 2021

The Virginia Overtime Wage Act imposes a state law obligation to pay overtime and expands upon the federal Fair Labor Standards Act in several important areas.

New Legal Landscape

Virginia Governor Ralph Northam recently signed into law the Virginia Overtime Wage Act (the Act), which becomes effective on July 1, 2021. Prior to the Act’s passage, Virginia did not have a state law governing overtime payments, and employees were left to rely solely on the federal Fair Labor Standards Act (FLSA).

Like the FLSA, the Act requires employers to pay overtime-eligible employees paid on an hourly basis at the rate of one and one-half times the employee’s regular rate for all hours worked in excess of 40 in a workweek. The Act also authorizes collective actions “consistent with the collective action procedures of the Fair Labor Standards Act.” Importantly, however, the Act differs from the FLSA in several key respects including (1) the method by which the regular rate of pay is calculated for overtime-eligible employees who are salaried; (2) providing a longer statute of limitations to bring potential claims; and (3) providing the ability for overtime-eligible employees to recover greater damages.

Calculating an Employee’s Regular Rate of Pay

To start, the Act differs from the FLSA with regard to how the regular rate of pay is calculated for overtime-eligible employees paid on a salary basis.

Under the FLSA, the regular rate is calculated by adding all remuneration for employment (less statutory exclusions) and dividing by total hours worked in a workweek. This is true regardless of whether an overtime-eligible employee is paid on an hourly or salaried basis.

Under the Act, the regular rate calculation differs depending on whether an employee is paid on an hourly or a salary basis. For employees paid on an hourly basis, the regular rate is calculated in the same manner as under the FLSA. Specifically, all compensation paid to the employee for the workweek (less statutory exclusions) is divided by the total number of hours worked that workweek.

In contrast, under the Act, the regular rate for overtime-eligible employees who are salaried is calculated by taking all compensation the employee earned in a given workweek and dividing it by 40. The employer must then pay the employee 1.5 times the employee’s regular rate for all overtime hours.

Requiring the regular rate to be calculated in this manner is significant because it appears to preclude employers from paying overtime-eligible employees a fixed salary to cover wages for hours in excess of 40 in a workweek (including on a fluctuating workweek basis). In turn, this will result in salaried, overtime-eligible employees being entitled to higher overtime premiums under the Act than they would be under the FLSA.

For example, under the FLSA, an employee paid using the fluctuating workweek method who worked 50 hours and was paid a salary of $1,000 dollars would be owed $100 in overtime premiums and receive total compensation of $1,100 for that week of work. The overtime premiums due this employee would be calculated as follows:

  • $1,000/50 hours = $20 per hour regular rate
  • One-half the $20 regular rate = $10 per hour
  • 10 overtime hours x $10 per hour= $100 in overtime premiums

Under the Act, the same employee would be entitled to $1,375 in total compensation. The regular rate and overtime pay would be calculated as follows:

  • $1,000/40 = $25 per hour regular rate
  • Time and a half of the $25 regular rate = $37.50
  • 10 overtime hours x $37.50 per hour = $375.00 in overtime pay

Liquidated Damages and Prejudgement Interest

The Act also differs from the FLSA in that it provides employees with the possibility of recovering greater damages than they could under the FLSA. Under the FLSA, an employer may be liable for double damages and can avoid those damages by demonstrating that it acted in good faith.

In contrast, under the Act, all overtime wage violations are subject to mandatory double damages plus prejudgment interest at 8% a year. There is no good-faith defense. Furthermore, treble damages are available for “knowing” violations—i.e., violations where the employer had actual knowledge that it failed to pay the overtime wages due or acted in deliberate ignorance or with reckless disregard as to whether it was paying all overtime due.

Statute of Limitations

The Act imposes a mandatory three-year statute of limitations for all overtime claims, in contrast to the FLSA’s two-year period (reserving the longer three-year statute of limitations for willful violations).

Employer Outlook

Given the Act’s increased penalties and elongated statute of limitations, it is likely that Virginia will become a more enticing venue for plaintiffs’ attorneys looking to bring wage and hour actions. Accordingly, we recommend that prior to the Act’s July 1, 2021 effective date employers review their overtime pay practices to ensure compliance with both the FLSA and the new Virginia Act. 

Additionally, in light of the ability to bring collective actions and recover potentially greater penalties than under the FLSA, plaintiffs’ attorneys may choose to forgo federal FLSA claims and proceed solely under the Act. Virginia-based employers—who will be unable to remove actions brought solely under state law—should thus be prepared to litigate cases in the commonwealth’s courts.

CONTACTS

If you have any questions or would like more information about the Virginia Overtime Wage Act or any other wage and hour issue, please contact any of the following Morgan Lewis lawyers:

Washington, DC
Lincoln O. Bisbee
Russell R. Bruch