Global Compliance Desk – Virginia
Virginia Enacts Overtime Wage Law
Effective July 1, 2021, Virginia employers will be subject to new state overtime pay requirements. Virginia Governor Ralph Northam signed into law the Virginia Overtime Wage Act on March 31, 2021.
Currently, Virginia relies on the overtime pay requirements of the federal Fair Labor Standards Act (FLSA) which 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.
Like the FLSA, the new Virginia law shall also require 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.
Rate of Calculation – The new Virginia law specifies exactly how that regular rate and overtime rate are to be calculated for hourly and salaried non-exempt workers, effectively eliminating certain payment arrangements available under the FLSA.
Under the FLSA, employers calculate an employee’s regular rate by dividing the employee’s total compensation for the week (excluding statutory exclusions, such as certain gifts, time paid for vacation, certain business reimbursements) by the total hours worked in the workweek. This is the same calculation for all non-exempt employees, whether they are paid on an hourly, salary, or another basis.
The Virginia Overtime Act, however, shall change how employers should calculate a non-exempt employee’s regular rate of pay if that employee is paid on a salary basis. If the employee is paid on an hourly basis, the Virginia Overtime Act adopts the FLSA calculation described above.
But if an employee is paid on a salary basis it would include wages, commissions, and non-discretionary bonuses, and the regular rate will simply be calculated by dividing the amount of compensation received that week by 40 hours – regardless of how many hours the employee actually worked that week.
Even though the difference may seem small, this could greatly increase the amount of overtime owed to salaried non-exempt employees.
For example, under the FLSA, a salaried non-exempt employee that makes $1,000 per week and worked 50 hours that week would have a regular rate of $20 per hour. Thus, all overtime should be paid to that employee at $30 an hour (1.5 times $20).
By contrast, under the new Virginia Overtime law, the same employee’s regular rate of pay is determined by dividing $1,000 by 40 – even if the employee actually worked 50 hours that week. As a result, that employee’s regular rate of pay under the Virginia Overtime Law would be $25 per hour, with overtime to be paid at $37.50 per hour (1.5 times $25).
Virginia employers should promptly review their overtime pay practices, reconsider whether non-exempt salaried employees should be paid on an hourly basis, and re-examine which employees are considered exempt.
