Changes coming to the state minimum wage and overtime pay

May 1, 2021

Two big changes are taking place this year to compensate workers.

First up is a change in the state minimum wage. Starting May 1, employers are required to pay workers a minimum of $9.50 an hour, up from the $7.25-an-hour rate that also is the federal minimum wage.

Virginia’s minimum wage increases by 15.7% on Jan. 1 to $11 per hour, and successively increases annually until it reaches $15 per hour on Jan. 1, 2026, contingent on future actions by the General Assembly.

About 367,000 employees in Virginia — out of a total workforce of 4 million people — earned less than $9.50 an hour, according to data from late 2019 compiled by research firm Chmura Economics & Analytics.

So the increase on May 1 — which originally was set to take effect on Jan. 1 but was delayed because of the pandemic — won’t affect as many workers.

But the bigger impact on employers could come in January when the minimum wage goes to $11 per hour.

Employers also need to be concerned with another state law — the Virginia Overtime Wage Act, which takes effect July 1. This law was enacted by Virginia lawmakers during this year’s General Assembly.

While overtime pay has been a staple of federal law for decades, Virginia’s new law expands the coverage of overtime rights to employees by eliminating a pay formula employers have in calculating overtime pay for salaried workers, by increasing the statute of limitations, by increasing damages and by providing for collective actions under Virginia law.

The overtime law applies to all employers, regardless of size.

Under current federal law (and now Virginia law), employers must pay an overtime premium to all non-exempt employees at a rate not less than one and one-half times the employee’s regular rate of pay for all hours worked over 40 in a workweek.

A workweek is defined as seven consecutive 24-hours and must be set by the employer, and it cannot change week to week.

The Fair Labor Standards Act, originally created in 1938, is a 20th century law being used in the 21st century workplace and employers have struggled for decades to fully comply.

At the end of April, for instance, Nike agreed to pay $8.25 million to workers for failing to pay for the end of shift security check. In today’s fluid workplace where workers crave flexibility, the FLSA is nothing but rigid.

Instead of providing for more flexibility, Virginia lawmakers chose to double down on this dinosaur of a law, adding less flexibility and making liability more likely — and more costly.

To properly calculate overtime, employers must first determine the regular rate of pay. This seems simple, but it isn’t.

Employers have struggled for decades to understand the complexity of calculating the “regular rate” under federal law when commissions, non-discretionary bonuses, on-call and other compensation are tied to the workweek.

For employees paid hourly, the Virginia law provides that the “regular rate” shall include 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 FLSA, divided by the total number of hours worked in that workweek. This appears to generally be consistent with federal law, although defined differently.

The big concern is with salaried non-exempt employees.

Because the law requires that pay be calculated based on a 40-hour workweek and not all hours worked (as it is under federal law), the rate of pay will likely be higher, in some cases substantially.

Moreover, Virginia has taken away a pay methodology that many employers use.

Under federal law, the “fluctuating workweek” method of calculation can apply for non-exempt employees paid on a salary basis where their hours fluctuate week to week. When those employees work more than 40 hours in a workweek, they are paid half time and not time and a half for overtime.

Employees under this scenario enjoy the certainty of pay and flexibility of hours.

In addition, employers relied upon this calculation when it inadvertently misclassified an employee as exempt.

The fluctuating workweek calculation appears to be non-existent under the new Virginia law.

Virginia law also expands the statute of limitations from two years under the FLSA (with a three-year statute of limitations only for willful violations) to three years.

Violations include civil or criminal penalties.

Employees can bring individual or collective actions.

Employers can be liable for wages owed, as well as liquidated damages (two times what is owed), interest, attorney’s fees and costs. Under federal law, employers can argue that it acted in good faith to avoid the liquidated damages. This is not an option under Virginia law.

For willful violations, the law states, “If the court finds that the employer knowingly failed to pay wages to an employee in accordance with this section, the court shall award the employee an amount equal to triple the amount of wages due and reasonable attorney fees and costs.”

Police and fire have separate provisions, including those outlined in federal law.

Employers need to immediately review their pay practices, and make sure that all exempt employees are properly classified. Paying a salary isn’t enough. It depends on a duties test outlined under the FLSA.

For non-exempt employees, employers must align their pay practices with these new provisions.