Virginia Overtime Wage Act: How Employers Can Prepare for the July 1 Effective Date
The Virginia Overtime Wage Act (VOWA), Va. Code § 40.1-29.2, becomes effective July 1, 2021, and will significantly alter employers’ wage and hour obligations in Virginia. At first glance, the VOWA appears to track federal law under the Fair Labor Standards Act (FLSA). Upon closer examination, however, this new law contains important nuances that deviate from the FLSA, such as a new method for calculating the regular rate of pay, an extended statute of limitations, automatic liquidated damages, possible treble damages, and the effective elimination of popular pay schemes.
Exemptions and Regular Rate Calculations
Like the FLSA, the VOWA generally requires employers to pay nonexempt workers an overtime rate of one-and-one-half times their regular rate for any hours worked in excess of 40 hours in one workweek. The VOWA (at Va. Code § 40.1-29.2(A)) appears to incorporate most FLSA exemptions by excluding certain workers from the definition of “employees.” However, the VOWA, at Va. Code § 40.1-29.2(D), later creates some ambiguity by apparently limiting available exemption defenses to executive, administrative, professional, and outside sales exemptions, as well as more discrete transportation-related exemptions. A narrow reading of the statute could potentially prohibit employers from raising as a defense that other traditionally exempt workers—such as computer employees (29 U.S.C. § 213(a)(17))—are not entitled to overtime.
For nonexempt hourly workers, the method for calculating the regular rate of pay in the VOWA (at Va. Code § 40.1-29.2(B)(1)) is consistent with the FLSA: employers are instructed to take the sum of the worker’s hourly wages and any other nonovertime wages paid or allocated for that workweek (excluding payments that may be excluded under the FLSA) and divide that number by the total number of hours worked. For example, if an employee works 50 hours at $15 per hour, and receives a $200 nondiscretionary bonus at the end of the week, his or her regular and overtime rates would be calculated as follows:
Regular Wages: $15 x 50 = $750
Wages + Bonus: $750 + $200 = $950
Regular Rate: $950/50 = $19/hour
Overtime Rate: $19 x 1.5 = $28.50/hour
Another apparent ambiguity in the VOWA is its description of the regular rate calculation for hourly workers. The act states, “[F]or employees paid on an hourly basis, the regular rate is the hourly rate of pay plus any other non-overtime wages paid or allocated for that workweek, excluding any amounts that are excluded from the regular rate by the federal Fair Labor Standards Act, 29 U.S.C. § 201 et seq., and its implementing regulations, divided by the total number of hours worked in that workweek.” (Emphasis added.) Read literally, this approach would likely take the regular rate of pay below the minimum wage and appears to be a drafting error. For example, if a worker’s hourly rate of pay is $12.00, and he or she did not receive any other remuneration for a week in which he or she worked 60 hours, then his or her regular rate of pay would be $0.20 and his or her overtime rate would be just $0.30. Virginia law is clear that courts may not construe statutory language in a way that leads to “absurd results” that, as in this instance, would violate the FLSA.
With respect to nonexempt salaried workers, the VOWA very clearly diverges from the FLSA. Under the VOWA, a salaried worker’s regular rate of pay is one-fortieth of all wages paid for a particular week, regardless of how many hours the individual worked. In contrast, under the FLSA, a salaried worker’s regular rate of pay is calculated by dividing the salary by all hours worked. Moreover, the VOWA requires time-and-one-half overtime pay for all employees, regardless of pay scheme, whereas the FLSA regulations permit payment of only half-time for salaried workers and other regular-basis pay schemes. Under the VOWA, a salaried nonexempt employee will be owed substantially more for overtime hours, as demonstrated by this example that assumes a salary of $1,200 per week and a 50-hour workweek:
Regular Rate: $1,200/50 = $24/hour
Overtime Rate; $24 x 0.5 = $12/hour
Overtime Pay: $12 x 10 = $120
Regular Rate: $1,200/40 = $30/hour
Overtime Rate: $30 x 1.5 = $45
Overtime Pay: $45 x 10 = $450
As a result of this change, and until the Virginia Department of Labor and Industry (DOLI) or state courts issue further guidance, employers may want to consider transitioning salaried nonexempt workers to a simple hourly rate and/or reducing overtime work among salaried nonexempt workforces. For any nonexempt workers who remain salaried, beginning July 1, 2021, employers must update the method by which they calculate regular and overtime rates to comply with the VOWA.
Fluctuating Workweeks, Piece Rates, and Day Rates
Because the VOWA requires time-and-one-half overtime pay for all employees, any scheme that utilizes half-time pay to compensate workers for overtime hours worked—including fluctuating workweek (FWW), day rate, and piece-rate pay schemes— is now potentially unlawful in Virginia,. Although this may be another unintended consequence resulting from ambiguous statutory language, employers may want to consider eliminating FWW schemes altogether and reevaluating piece rates and day rates until DOLI issues guidance and/or state courts begin interpreting the law.
FWW schemes do not appear to comport with the VOWA’s method of calculating the regular rate for salaried workers, as such schemes cannot easily be adjusted to comply with the new law (dividing the salary by 40 every week would defeat the purpose of a FWW). Piece rates and day rates, on the other hand, could be adjusted to comply with the law, but the VOWA mandates that two basic requirements be met: (1) the regular rate of pay must be determined by taking “[1/40] of all wages paid in a workweek” (rather than dividing by all hours worked) and (2) the worker must be paid time and one half (rather than half-time) for all hours worked over 40 hours in a workweek.
Expansion of the Statute of Limitations and Available Remedies for Overtime Violations
The consequences of violating the VOWA are steep. The FLSA provides a two-year statute of limitations for overtime violations and permits a three-year statute of limitations only if a violation is “willful.” The VOWA (at Va. Code § 40.1-29.2(G)), on the other hand, applies a three-year statute of limitations to all violations, regardless of whether a violation was willful. In addition, the VOWA (at Va. Code § 40.1-29.2(F)) makes liquidated damages automatic; under the FLSA, an employer can defend against liquidated damages by demonstrating that it acted in good faith, with reasonable grounds for believing it acted in compliance with the FLSA. Moreover, under the VOWA, “knowingly” failing to comply with the law may result in treble damages, which are not available under the FLSA. Finally, plaintiffs suing under the VOWA may also recover an 8 percent prejudgment interest penalty and reasonable attorneys’ fees and costs, neither of which are automatically available under the FLSA.
Employers may want to consider evaluating how they compensate nonexempt employees in Virginia, particularly with respect to nonexempt salaried workers and employees working under FWW arrangements. Piece and day rates may also need to be adjusted to comport with VOWA’s regular rate and overtime requirements. Ambiguities in the law will need to be resolved by the Virginia General Assembly, DOLI, and/or the courts, but in the meantime, Virginia employers may want to consider a conservative approach to avoid steep penalties, including automatic liquidated damages, possible treble damages, a mandatory 8 percent pre-judgment interest fee, and liability for plaintiffs’ attorneys fees and costs.