Seventh Circuit’s ‘Extra Pay’ Decision Confirms FLSA Standards Apply to Wisconsin Employer Overtime Calculations

Takeaways

• In Lutz v. Froedtert Health, the Seventh Circuit ruled a health system correctly included shift differentials, weekend differentials, and incentive pay in employees’ regular rate of pay before calculating overtime, consistent with the FLSA and Wisconsin law.
• The court confirmed that although Wisconsin wage law does not define “regular rate,” it should be interpreted consistently with the FLSA on both overtime and holiday pay calculations.
• Employers may exclude holiday premiums from the overtime regular rate calculation if premiums are paid at least 1.5 times the employee’s bona fide hourly rate.

Related link

• Lutz v. Froedtert Health Inc.

Article

The U.S. Court of Appeals for the Seventh Circuit held that a Wisconsin health system employer’s practice of including shift differentials, weekend differentials, and incentive (“Extra Pay”) premiums into employees’ regular rate of pay before applying a half-time overtime multiplier complies with both the federal Fair Labor Standards Act (FLSA) and the Wisconsin Wage Payment and Collection Law (WWPCL). Lutz v. Froedtert Health Inc., No. 25-2802 (7th Cir. July 27, 2026).

The court also concluded that the employer properly excluded holiday pay premiums from the regular-rate calculation because the premiums exceeded 1.5 times employees’ base hourly rates.

Importantly, although Wisconsin law does not define the “regular rate” for overtime purposes, the court found that Wisconsin law must be interpreted to be consistent with the FLSA. Therefore, the court affirmed summary judgment in favor of the employer on both federal and state law claims.

The Seventh Circuit covers federal district courts in Illinois, Indiana, and Wisconsin.

Background

Nichole Lutz worked as a sterile processing technician for Froedtert Health, a Wisconsin hospital system. Like many healthcare employers staffing around-the-clock operations, Froedtert pays hourly employees a base rate and, where applicable, shift differentials for second- and third-shift work, weekend differential, and “Extra Pay” premiums for picking up extra shifts, as well as separate on-call time bonuses. For overtime calculations, Froedtert includes shift differentials, weekend differentials, and Extra Pay amounts in employees’ regular rate of pay, while excluding on-call pay and holiday pay premiums.

Lutz sued on behalf of a class of employees, alleging that Froedtert improperly “credited” those premiums against required overtime pay and that excluding holiday premiums from employees’ regular rate violated federal and Wisconsin law. The district court agreed with Froedtert’s methodology and granted summary judgment to the employer dismissing the class-wide claims, denied Lutz’s motion for reconsideration, and dismissed the case with prejudice. Lutz appealed.

Overtime Calculation Method Upheld

When an employee works more than 40 hours in a week, the FLSA requires the employer to pay a premium for each overtime hour at 50% of the “regular rate of pay.” The regular rate is calculated by dividing total remuneration (minus any statutory exclusions) by total hours worked in the week. Froedtert’s method, consistent with U.S. Department of Labor (DOL) guidance, included all shift premiums, weekend differentials, and other non-excluded pay in the regular rate calculation.

Lutz argued this approach improperly credits shift and weekend differentials earned during non-overtime hours against the required overtime premium, in violation of 29 U.S.C. § 207(h)(2), which limits the categories of extra pay may be credited toward overtime.

The Seventh Circuit rejected Lutz’s argument, explaining that Section 207(h)(2)’s crediting limitation governs only the specific bonus categories described in that provision and does not restrict how employers compute the regular rate in the first instance. The court also noted that Lutz’s proposed alternative (segregating overtime hours from non-overtime hours before applying differentials) would create pay disparities between employees who worked the same total and differential hours, based solely on when during the week those hours happened to fall.

Holiday Pay Properly Excluded

Lutz separately claimed Froedtert improperly excluded holiday pay premiums from the regular-rate calculation. The FLSA allows employers to exclude holiday premiums from the regular rate if they are paid at 1.5 times an employee’s “bona fide” hourly rate for comparable non-overtime work. The court found that Froedtert’s holiday premiums were lawfully excluded because they exceeded this threshold.

The court rejected Lutz’s proposed method of including holiday pay in the regular rate before testing whether it should be excluded. The court explained that doing so would create the “pyramiding” problem, an endless cycle of recalculating the regular rate each time a new premium is layered on top of it, that the U.S. Supreme Court warned against in Bay Ridge Operating Co. v. Aaron, 334 U.S. 446 (1948).

Wisconsin Law Mirrors FLSA

Like the FLSA, Wisconsin law requires employers to pay employees overtime pay of at least 1.5 times the “regular rate.” Neither the Wisconsin Statutes nor the Wisconsin Administrative Code explains how to calculate an employee’s “regular rate.” Lutz argued that because Wisconsin law did not state any exclusions from the regular rate of pay, Wisconsin employers could not avail themselves of the regular rate exclusions in § 207(e) of the FLSA.

The Seventh Circuit disagreed. Because Wisconsin’s wage statute and regulations are substantially similar to the FLSA, the Seventh Circuit looked to Wisconsin case law applying the state’s wage statutes consistently with federal law, including the Wisconsin Court of Appeals’ decision in Kuhnert v. Advanced Laser Machining, Inc. The court held that, even though Wisconsin law lacks the detailed “regular rate” definition found in the FLSA, Wisconsin’s overtime laws should be interpreted consistently with the FLSA. As Lutz offering no basis to interpret Wisconsin law differently from the FLSA, the court held Froedtert’s overtime methodology complied with Wisconsin law.

The appeals court was not done. The Seventh Circuit also denied Lutz’s request to certify the question regarding treatment of holiday pay under state law to the Wisconsin Supreme Court. As the court explained, certification is appropriate only where the answer is “genuinely uncertain” and likely to recur. In this instance, “[t]here is no genuine uncertainty or serious doubt that the Wisconsin Supreme Court would interpret Wisconsin wage laws inconsistently with the FLSA by excluding holiday pay from regular rate calculations.”

Practical Implications

This decision confirms that Wisconsin employers do not need to perform a separate overtime calculation under Wisconsin law.

In addition, for employers, particularly hospitals and other healthcare systems that rely on shift differentials, weekend differentials, and incentive pay to staff around-the-clock operations, the DOL-endorsed “aggregate” overtime calculation method complies with both the FLSA and Wisconsin law. Further, holiday pay premiums can be excluded from the regular rate if they are at least 1.5 times an employee’s bona fide base rate before factoring any holiday pay into the calculation.

Employers in the Seventh Circuit should review their differential pay and holiday pay practices against this framework, particularly if they use a hybrid or blended calculation method for hourly staff working variable shifts. Employers should consult with counsel to confirm that their overtime and premium pay practices align with this framework.

Please contact your Jackson Lewis attorney if you have questions about the impact of this decision on your organization.