The U.S. Court of Appeals for the Seventh Circuit has upheld a Wisconsin health system’s overtime calculation practices, finding them consistent with both federal and state wage law.
The ruling came in Lutz v. Froedtert Health Inc., No. 25-2802, decided on 27 July 2026, involving claims brought by a sterile processing technician against a major Wisconsin hospital system.
Nichole Lutz sued on behalf of a class of employees, alleging that Froedtert Health improperly handled shift differentials, weekend differentials, and incentive premiums when calculating overtime pay.
Froedtert pays hourly employees a base rate alongside shift differentials for second- and third-shift work, a weekend differential, and “Extra Pay” premiums for picking up additional shifts.
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 argued the approach improperly credited those premiums against required overtime pay in violation of 29 U.S.C. § 207(h)(2), which limits the categories of extra pay that may be credited toward overtime obligations.
The Seventh Circuit rejected that argument, explaining that Section 207(h)(2)’s crediting limitation governs only specific bonus categories and does not restrict how employers compute the regular rate in the first instance.
The court also found that Froedtert properly excluded holiday pay premiums from the regular-rate calculation, as those premiums exceeded 1.5 times employees’ base hourly rates, satisfying the relevant federal threshold.
The court rejected Lutz’s proposed method of including holiday pay in the regular rate before testing exclusion, warning that doing so would create the problematic “pyramiding” effect the U.S. Supreme Court cautioned against in Bay Ridge Operating Co. v. Aaron, 334 U.S. 446 (1948).
On the question of Wisconsin state law, the court noted that neither the Wisconsin Statutes nor the Wisconsin Administrative Code defines how to calculate an employee’s regular rate for overtime purposes.
Lutz argued that because Wisconsin law states no exclusions from the regular rate, Wisconsin employers could not rely on the regular rate exclusions found in Section 207(e) of the FLSA.
The Seventh Circuit disagreed, looking to Wisconsin case law, including the Wisconsin Court of Appeals’ decision in Kuhnert v. Advanced Laser Machining, Inc., to find that state wage laws should be interpreted consistently with federal standards.
The court also declined Lutz’s request to certify the holiday pay question to the Wisconsin Supreme Court, finding no genuine uncertainty that would justify such a referral.
The court stated that “[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.”
The decision confirms that Wisconsin employers do not need to perform a separate overtime calculation under state law, simplifying compliance obligations for businesses operating in the state.
For healthcare systems and other employers that rely heavily on shift differentials and incentive pay to staff around-the-clock operations, the ruling provides meaningful clarity on how to structure overtime calculations lawfully.
Legal experts at Jackson Lewis P.C. advise that employers in the Seventh Circuit, which covers federal district courts in Illinois, Indiana, and Wisconsin, should review their differential and holiday pay practices against this framework and consult counsel where needed.