Wisconsin Has Overtime Regulations, Too

In our July issue, we alerted readers about some of the challenges presented by the upcoming changes made by the U.S. Department of Labor’s (DOL) final rule updating the white-collar overtime exemptions of the Fair Labor Standards Act (FLSA). You should also be aware that Wisconsin has its own set of rules for overtime exemptions. As the December 1, 2016, effective date of the DOL’s overtime rule approaches, Wisconsin employers need to understand how federal wage and hour law interacts with Wisconsin law and how you may be affected if you’re subject to one or both laws. This article provides additional information about the federal law changes, information about the Wisconsin law, and what you need to know to be in compliance with both laws.

Changes to the Federal Overtime Regulations

The FLSA guarantees employees a minimum wage for all hours worked and overtime pay of 1½ times their regular rate of pay when they work more than 40 hours in a workweek. The FLSA provides an exemption from both minimum wage and overtime pay for employees who are employed in certain executive, administrative, and professional positions as well as outside salespersons and certain computer employees (the “white-collar” exemptions).

There are three tests under the FLSA to satisfy the white-collar exemptions:

1. The salary level test, which requires that employees be paid a certain minimum salary level;
2. The salary basis test, which requires that employees be paid on a salary (or fee) basis, regularly receiving each weekly (or less frequent) pay period a predetermined amount of compensation that is not subject to reduction because of variations in the quality or quantity of work; and
3. The job duties test, which requires that employees perform exempt duties as their primary duty.

The federal law also includes an exemption for highly compensated employees (HCEs) who perform office or nonmanual work and are paid at a higher salary level. HCEs are exempt as long as they customarily and regularly perform one or more of the duties of an exempt executive, administrative, or professional employee.

The recent DOL changes affect the salary level test. The agency also invited comments on whether to make changes to the duties test but ultimately decided not to update either the duties tests or the salary basis test. The new rule changes the salary level test under the FLSA by:

Increasing the minimum salary level required for exempt status from $455 per week ($23,600 annually) to $913 per week ($47,476 annually);

• Allowing up to 10 percent of the salary minimum to be satisfied with nondiscretionary bonuses and incentive payments, including commissions, if they are paid at least quarterly or more frequently;
• Increasing the minimum annual compensation required for exempt HCEs from $100,000 annually to $134,004 annually, with at least $913 per week paid on a salary or fee basis; and
• Providing for automatic increases to the standard salary and annual compensation levels every three years beginning January 1, 2020.

The minimum salary level was set at the 40th percentile of weekly earnings of full-time salaried employees in the lowest wage Census region (currently the South). The HCE minimum salary level was set at the 90th percentile of weekly earnings of full-time salaried workers nationwide. The automatic increases will reflect these percentiles going forward. The increases will be published by the secretary of labor at least 150 days before their effective date.

Remember, the salary level and salary basis tests do not apply to certain categories of employees, including outsides sales employees, doctors, lawyers, teachers, and computer-related professionals who earn at least $27.63 per hour.

Wisconsin Requirements Affect Your Obligations

Wisconsin’s overtime exemption rules are more stringent than the FLSA regulations. Wisconsin chose not to make changes to its overtime exemptions when the DOL last revised the FLSA overtime regulations back in 2004, and the state hasn’t made any changes corresponding to the latest federal revisions.

One of the most significant differences between state and federal law is the duties test applied under Wisconsin law, which imposes percentage limits on the amount of nonexempt work an employee may perform and still qualify for exempt status. The limit is 20 percent for most exempt occupations and up to 40 percent for employees who work for retail and service establishments. For most Wisconsin employers, that makes the federal duties test inapplicable. You must apply the Wisconsin duties tests to determine your white-collar employees’ exempt status.

Another difference is that Wisconsin’s minimum salary level for exempt employees hasn’t been updated for many years. Wisconsin law still requires that exempt executive and administrative employees be paid a salary of $700 per month and exempt professional employees be paid $750 per month. However, because most employers are also subject to the federal law, Wisconsin’s lower minimum salary level doesn’t make a practical difference.

The interaction between federal and state law requires that employers subject to both laws comply with the most stringent (i.e., most employee-friendly) provision under each law. In other words, if you’re subject to both Wisconsin law and the FLSA, you must comply with the more stringent duties test under the Wisconsin law and the more stringent salary level test under the federal law. Also, Wisconsin law doesn’t include an exemption for HCEs, so that exemption isn’t available for employers subject to both laws.

In addition to differences in the duties and salary level tests, there are other significant differences in the federal and state laws. One difference is that the FLSA provides an exemption to overtime and minimum wage, while the Wisconsin law provides an exemption to overtime only. For Wisconsin employers, that means exempt employees must still be paid at least the state minimum wage for all hours worked.

Another difference is that the federal overtime law applies to nonprofit organizations, while the Wisconsin overtime law doesn’t apply to most nonprofit organizations. As a result, nonprofits need only look to the federal law as it applies to their overtime obligations. There’s also a difference for public-sector employees of the state and its political subdivisions, like municipalities. Both the federal and state laws apply, but Wisconsin law requires employers to look solely to the federal law for purposes of determining overtime exemptions.

Bottom Line

With the effective date of the changes to the FLSA’s overtime rules on the horizon, employers are already looking closely at their workforces to reevaluate the exempt status of their employees and decide whether to raise their salaries to maintain that status or convert them to hourly or salaried nonexempt employees eligible for overtime. Wisconsin employers need to factor into their evaluation the differences under state law. For most Wisconsin private-sector for-profit employers, that means compliance with the Wisconsin duties test and the new federal salary levels, along with the salary basis test that applies under both laws.

This article, slightly modified to note recent updates, was featured in the September 2016 issue of the Wisconsin Employment Law Letter, which is co-edited by Axley Brynelson Attorneys Saul Glazer and Michael Modl and published by BLR®—Business & Legal Resources. Reproduced here with the permission of BLR®—Business & Legal Resources.