Virginia employers face increasing scrutiny over how they pay their workers. The Virginia Department of Labor and Industry (DOLI), along with the federal Department of Labor (DOL), continues to crack down on wage theft and the misclassification of employees as independent contractors. For employers across the Commonwealth, these enforcement efforts carry real financial consequences—ranging from hefty fines to multimillion-dollar settlements.

Understanding the scope of Virginia’s wage laws, what constitutes a violation, and how to stay compliant is critical. With enhanced legal tools available to workers and aggressive government oversight, businesses that fail to take wage compliance seriously could face serious liability.

What Are Wage Theft and Employee Misclassification?

Wage theft occurs when an employer fails to pay a worker what they are legally owed. Common examples include (1) not paying an employee overtime for hours worked beyond 40 in a workweek, (2) making unlawful deductions from an employee’s pay, or (3) failing to pay the employee at or above the Virginia minimum wage. Even failing to pay workers for all time worked—such as pre-shift preparation or off-the-clock labor—can be classified as wage theft.

Employee Misclassification occurs when an employer treats workers who should be classified as employees as independent contractors instead. Workers misclassified as contractors miss out on critical protections such as overtime pay, unemployment benefits, workers’ compensation, and employer-paid payroll taxes. In Virginia, the law now presumes that a worker is an employee unless the employer can prove otherwise using the IRS’s 20-factor guidelines. Employers often misclassify employees as contractors in an effort to reduce labor costs.  However, that strategy can backfire, with costly legal and financial consequences for the employer.

The Legal Landscape: Virginia’s Wage Laws

Over the last few years, Virginia has strengthened its wage and hour laws to better protect workers and hold employers accountable. Key legislation includes:

• Virginia Wage Payment Act (VWPA): Requires timely and full payment of all wages earned by an employee. Employees now have a private right of action, and can bring private lawsuits to recover unpaid wages, salary, employment benefits, or other compensation lost to the individual, reasonable attorneys’ fees, and costs incurred by the individual in bringing the action.
• Virginia Overtime Wage Act (VOWA): Mandates overtime pay at one and one-half times an employee’s regular rate of pay for all hours worked over 40 in a workweek.  VOWA provides enhanced penalties for violations.
• Misclassification Provisions: Under Virginia law, an individual who has not been properly classified as an employee may bring a civil action against their employer for damages, including back wages, benefits, taxes, and penalties, if an employer “knew or should have known” that it misclassified the worker.

What Are the Penalties?

Virginia has also adopted enhanced statutory enforcement tools for willful violations of its wage-hour, wage payment, and employee misclassification laws. The cost of non-compliance can be steep. Virginia’s laws allow for:

• Treble Damages: Courts may award up to three times the amount of unpaid wages for willful violations, prejudgment interest, plus reimbursement of attorneys’ fees and court costs.
• Civil Fines: Misclassification violations can result in fines up to $5,000 per employee for repeat offenses.
• Joint Liability: General contractors can be held liable for wage violations committed by their subcontractors on certain projects.
• Loss of Licenses and Contracts: Repeat offenders may be barred from public contracts or have their business licenses suspended or revoked.
• Federal Penalties: On top of state law, federal agencies can impose additional fines, back wages, and liquidated damages for FLSA violations.

With enforcement on the rise, the risks to Virginia employers have become greater—especially those in industries like construction, hospitality, and janitorial services, where violations are more common and state and federal enforcement is more focused..

What Employees Can Do—And Why Employers Should Care

Virginia law empowers employees with strong legal tools to recover unpaid wages. Workers can:

• File a complaint with DOLI’s Wage Payment unit.
• Contact the U.S. Department of Labor’s Wage and Hour Division.
• Bring a private lawsuit under the Virginia Wage Payment Act or Overtime Wage Act.

Successful claims may result in treble damages, attorneys’ fees, and penalties – many that employers may end up paying much more than what was initially owed. Retaliation for wage complaints is also illegal and can lead to separate employer liability.

In short, even one underpaid employee can trigger significant legal and financial risk for your business.

Real-World Examples: Virginia Employers Paying the Price

Virginia’s wage-hour and employee misclassification laws are not theoretical—they are actively being enforced against employers. Here are a few representative examples of the financial toll:

• Plaza Azteca Restaurant Chain: In 2023, the Virginia-based restaurant group agreed to pay $11.4 million in back wages and damages following a U.S. Department of Labor investigation that revealed systemic underpayment and overtime violations across 40+ locations. The company also paid $625,000 in civil penalties and was required to bring in an independent monitor.
• Village Concrete Inc.: This Manassas-based construction firm was found to have misclassified dozens of workers and failed to pay them overtime. A federal court ordered the company to pay more than $1.1 million in back wages and liquidated damages, along with nearly $70,000 in statutory penalties.
• Felony Charges for Misclassification: Two Virginia drywall companies were criminally prosecuted for intentionally misclassifying employees to avoid paying payroll taxes. Both companies pled guilty to felony embezzlement and were required to pay restitution and fines. This case marked one of the first criminal prosecutions under Virginia’s new misclassification laws.

These examples highlight how employment wage-hour and misclassification law violations can result not just in civil lawsuits, but also in reputational damage, potential criminal exposure, and long-term financial burdens for Virginia employers.

Staying Compliant: Best Practices for Employers

The good news is that wage law compliance can be manageable with the right systems and attention. Here are several steps Virginia employers can take to stay in the clear:

• Review Worker Classifications: Audit your workforce to ensure that individuals classified as independent contractors meet IRS standards. When in doubt, it makes sense to classify conservatively.
• Ensure Proper Payment of Wages and Overtime: Use accurate timekeeping systems, provide clear instructions to employees on how to use the timekeeping system, and require uniform compliance with timekeeping policies. Avoid off-the-books labor and ensure all compensable time is paid.
• Maintain Strong Recordkeeping: Keep clear and complete payroll records, including time worked, wage rates, and deductions. This documentation can be critical in responding to audits or legal claims and is required under state and federal law
• Conduct Regular Payroll Audits: Have legal counsel or a third-party HR consultant review payroll practices, especially when onboarding new employees or implementing new payment structures.
• Train Supervisors and Managers: Make sure those in charge of employee scheduling and payroll understand the rules around minimum wage, overtime, and off-the-clock work.
• Seek Legal Guidance: Given the complexity of wage-hour law, it’s wise to consult with experienced legal counsel before making significant policy or classification changes.

Conclusion

Virginia employers should consider taking proactive steps to ensure full compliance with both state and federal wage laws. The cost of ignoring these obligations—lost contracts, million-dollar settlements, and even criminal charges—can be devastating.

By reviewing classification practices, tightening payroll systems, and seeking  legal advice where appropriate, an employers can protect its business operations, reputation, and bottom line. In the current heightened regulatory environment, a commitment to full and fair pay is not just the right thing to do—it is essential to staying in business.

Want to ensure your business is compliant? Contact Doug Taylor at (703) 525-4000 or rdougtaylor@beankinney.com.

This article is for informational purposes only and does not contain or convey legal advice. Consult an attorney. Any views or opinions expressed herein are those of the author and are not necessarily the views of the firm or any client of the firm.