On July 1, 2021, Virginia’s new Overtime Wage Act will take effect. Employers with employees in Virginia need to review the way in which they calculate overtime for salaried non-exempt employees, as the new law makes it impermissible to use the FLSA’s “fixed salary for fluctuating workweek” methodology that allows employers to pay a half-time premium for overtime hours.
The new law was signed by Governor Northam or March 30, 2021, and continues Virginia’s dramatic change in its employment law landscape over the past two years. Perhaps most significantly, the changes in the manner in which the regular rate is calculated for salaried non-exempt employees, as well as the creation of more substantial penalties and an extended statute of limitations, will make the Commonwealth an attractive jurisdiction for attorneys to pursue claims for unpaid overtime wages.
Under Section 40.1-29.2(B)(2) of the Virginia Code, the regular rate of pay for a salaried non-exempt employee will now be “one-fortieth of all wages paid for that workweek.” This means that the FLSA’s fluctuating workweek methodology, under which an employee’s salary covers their straight-time pay and overtime is calculated at ½ x (weekly salary/weekly hours), will not be legal under Virginia law.
The impact of this change will be two-fold. First, employers who use the fluctuating workweek methodology in Virginia will need to discontinue this practice. Second, when salaried employers are found to have been misclassified as exempt, overtime liability will be calculated at time and one-half their regular rate for hours over 40 in a workweek. Additionally, because the divisor used to calculate the regular rate will now be 40 instead of all hours worked, the base rate for overtime calculations will be much higher.
In addition to the changes in the methodology used to calculate the regular rate for salaried employees, the new law will extend the statute of limitations from two years to three years in all claims for unpaid overtime. The Act also increases employer penalties, making double damages automatic by eliminating the FLSA’s “good faith” defense to claims for liquidated damages. The Act also creates a new “treble damage” penalty for “knowing” violations where the employer is found to have acted with “deliberate ignorance” or “reckless disregard” of its overtime obligations.
The net result of these changes is that claims for unpaid overtime in Virginia will likely now be brought under state law and in state court, where summary judgment is generally not available. Combined with the new ability to bring collective actions under this law, we should expect to see a significant increase in wage and hour litigation in the Old Dominion.