Effective July 1, 2021 Virginia employers became subject to a new state overtime law: the Virginia Overtime Wage Act (VOWA) that makes overtime violations and employee misclassifications more costly for employers than the federal Fair Labor Standards Act (FLSA). Like the FLSA, the new Virginia law obligates employers to pay 1.5 times a non-exempt employee’s regular rate of pay for all hours worked in excess of 40 hours in each workweek. However, the VOWA is more onerous on employers (and more generous to employees) than the FLSA in several respects:

1. Statute of Limitations: Under the FLSA, employees can obtain back wages for 2 years prior to the date suit is filed and 3 years only if the wage payment violation is found to be "willful." By contrast, the VOWA allows employees to obtain back wages for 3 years for all violations, willful or not.
2. Liquidated Damages: Under the FLSA, an employee is entitled to liquidated damages (double the unpaid wages) unless the employer can show the violation was made in “good faith.” Under the VOWA, all violations are subject to double damages and "knowing" violations are subject to treble damages.
3. Calculation of Overtime for Salaried Nonexempt Employees: The calculation of overtime is more generous under the VOWA than the FLSA if a salaried exempt employee is found to have been misclassified and should have been paid overtime. Under the FLSA a salaried exempt employee's regular rate of pay and overtime rate is generally determined by dividing the employee’s salary by the number of hours the salary was intended to cover per week. By contrast, under the VOWA, the regular rate of pay for a salaried exempt employee upon which overtime is calculated by dividing the weekly salary by 40, regardless of whether the employee works more hours that week. This results in the overtime rate being higher for salaried nonexempt employees under the VOWA than under the FLSA.

As an example, under the FLSA the regular rate of pay for a salaried non-exempt employee earning $600 per week who works 40 hours a week is $15.00 per hour and the overtime rate is $22.50 per hour. If that employee works 60 hours a week that employee will have a regular rate of pay of $10 per hour and an overtime rate of $15.00 per hour. Thus, under the FLSA the more the salaried nonexempt employee works per week the lower the employee’s overtime rate.

By contrast, under the VOWA the regular rate of pay for a salaried non-exempt employee is based upon a 40 hour workweek, regardless of the number of hours worked. Accordingly under the VOWA, a salaried exempt employee earning $600 per week who works 60 hours a week will have a regular rate of pay of $15 per hour and an overtime rate of $22.50 per hour and will be entitled to 20 hours of overtime at $22.50 per hour. Thus, under the VOWA an employer may be liable for greater damages if it is found to have misclassified a salaried employee as exempt.

Additionally, it appears that the VOWA does not allow employers to pay non-exempt employees using the fixed salary or “fluctuating workweek” method of calculating overtime under the FLSA.

The VOWA makes misclassification of employees as exempt even more costly. The longer three-year statute of limitations, increased likelihood of obtaining liquidated damages and treble damages, and change in calculating the overtime rate will surely encourage increased scrutiny to overtime violations and misclassification of employees as exempt. Employers are advised to analyze whether or not their salaried employees are correctly classified as exempt and correct any misclassifications or payment issued identified.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

[View source.]