Virginia’s New Overtime Wage Act: Employee Classifications Matter More Than Ever

Although passed with little fanfare, the Virginia Overtime Wage Act (OWA) becomes effective on July 1, 2021. Employers should be aware of this new law because it makes misclassifying employees as exempt from overtime requirements much more costly.

In the past, Virginia relied on the federal Fair Labor Standards Act (FLSA) to ensure employees are either paid overtime or satisfy the conditions to be exempt from the law’s overtime requirements. However, the new Virginia OWA eliminates some traditional defenses employers have relied on to reduce damages if they, even inadvertently, misclassified an employee.

The Problem Begins with Improper Classification

Your hypothetical employee works as an administrative assistant and is paid a salary of $19,200 annually (or $600 per week). Your company has improperly classified this administrative assistant as exempt from overtime but he usually works between 50 and 65 hours, depending on the week. Your employee is now suing under the OWA, claiming that he is owed overtime payments.

How do you calculate the amount of overtime this employee might be owed?

The Virginia OWA states how overtime must be calculated for salaried employees:

• Their regular rate of pay is one-fortieth of all wages paid for that workweek.
• For any hours worked over 40 hours in any one workweek, an employer must pay overtime of 1.5 times the employee’s regular rate of pay.

Had this claim been filed under the FLSA, most employers would use the Fluctuating Work Week method of calculating overtime.

See a prior e-alert for a detailed explanation of this method.

Below is an example of how different these two calculations can be. Using the Fluctuating Work Week method, the former employee is owed only $456.75 in overtime pay for one month. However, using the same hypothetical hours worked, under the OWA method of calculating overtime the former employee is owed $1,575.

Federal FLSA Fluctuating Work Week Method

Virginia Overtime Wage Act Method

Is there a statute of limitations under the Virginia OWA? How many years of back pay could the employee be owed?

The OWA has a longer statute of limitations than the FLSA. The FLSA statute of limitations is generally two years unless the employer willfully violated the law. However, under the Virginia OWA, a plaintiff can sue up to three years later.

Assuming the table above represents a typical month for this employee, who has worked for your company for three years, he could be owed up to $56,700 in overtime compensation. The FLSA typically uses a two-year “look-back period” unless the employer willfully violated the law. So under the FLSA, the employer would likely only owe $10,962.

Can you argue your company didn’t know it was breaking the law?

Generally, the FLSA allows for liquidated damages up to the amount of unpaid wages. Employers can defend against liquidated damages by showing they acted in good faith and reasonably believed they were complying with the FLSA. In this example, an employer who could establish they made a good-faith effort to comply with the law could keep damages at only $10,962.

However, the OWA does away with the good faith defense. All overtime wage violations are subject to double damages. In addition, the law provides for treble damages for “knowing” violations.

Using the numbers above, a court could double the overtime owed to $113,400, plus interest and attorney’s fees. If a court found the employer knew it was violating the OWA, it could award up to $170,100, plus interest and attorney’s fees.

What if you have more than one administrative assistant who might be owed overtime?

The OWA now permits an employee to bring an action “individually, jointly, with other aggrieved employees, or on behalf of similarly situated employees as a collective action consistent with the collective action procedures of the [FLSA].” This means your other administrative assistants who believe they may also be owed overtime could consent in writing to become a party to collective action.

Adding five administrative assistants with the same salary and hours worked into the scenario means the employer could be facing damages up to $567,000 plus interest and attorney’s fees. If the court awarded treble damages for a “knowing” violation, the employer could owe up to $850,500 plus interest and attorney’s fees.

Preventing the Improper Classification Problem

Now more than ever, employers must correctly classify employees as exempt or nonexempt. In addition to evaluating your classifications, this is a good time to ensure your company has up-to-date and accurate job descriptions, a well-written employee handbook, and appropriate time-keeping procedures.

The Woods Rogers Labor & Employment team has extensive experience concerning overtime pay and can advise employers on how to correctly classify or re-classify employees to avoid litigation. ­