Navigating the complexities of overtime laws is essential for both employers and employees in Wisconsin. As a state with its own set of labor regulations, Wisconsin mandates specific overtime pay rules that differ from federal guidelines. Understanding these laws ensures compliance and protects the rights of workers, making it crucial for employers to stay informed.
Understanding Overtime Requirements in Wisconsin
In Wisconsin, like in many states, the standard for overtime pay is time-and-a-half for any hours worked beyond 40 in a single workweek. This means that if an employee’s regular hourly wage is $20, they should be paid $30 per hour for every hour worked over 40 in that week. The Wisconsin Department of Workforce Development (DWD) enforces this rule, ensuring that employees are fairly compensated for extended work hours.
However, not all employees are eligible for overtime pay. The distinction between exempt and non-exempt employees is a critical aspect of understanding overtime regulations. Exempt employees typically include those in executive, administrative, and professional roles. These positions often involve higher levels of responsibility and decision-making authority, which exempts them from overtime pay requirements. For instance, a manager who spends the majority of their time supervising other employees and making strategic decisions may fall into the exempt category.
On the other hand, non-exempt employees, who are typically hourly workers, are entitled to overtime pay. This group often includes roles such as clerks, customer service representatives, and other operational staff who do not have the same level of autonomy as exempt employees.
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Exemptions to Overtime Rules
Wisconsin law outlines specific exemptions to the overtime requirement. These exemptions are designed to address the unique nature of certain industries and job functions. For example, agricultural workers are often exempt from overtime because the nature of farming work does not always conform to a standard 40-hour workweek. Similarly, outside salespeople, who spend most of their time away from the employer’s place of business and are compensated primarily through commissions, are also exempt.
Other exempt categories include certain administrative, executive, and professional employees who meet specific criteria regarding their duties and salary. The state’s regulations specify that these employees must exercise discretion and independent judgment in significant matters and be compensated on a salary basis at a rate that meets or exceeds a set threshold. For example, a software engineer who earns a salary above a certain level and whose primary duty involves applying advanced knowledge and skills may be considered exempt from overtime pay.
Understanding these exemptions is critical for employers to ensure compliance and avoid potential legal disputes. Misclassifying an employee as exempt when they should be eligible for overtime can lead to significant penalties and back pay liabilities.
New Proposed Overtime Rules
In a significant move towards ensuring equitable compensation for American workers, the Biden administration has introduced new overtime rules through the U.S. Department of Labor (DOL). Announced on April 23, 2024, these changes are poised to impact millions of workers nationwide, including many in Wisconsin. Under the new rules, the minimum salary required for exemption will increase significantly:
- Starting July 1, 2024: The minimum salary for exemption will rise to $844 per week ($43,888 per year).
- Starting January 1, 2025: This threshold will increase further to $1,128 per week ($58,656 per year).
- Every Three Years: The salary threshold will be updated based on current wage data to ensure it keeps pace with inflation and economic changes.
For highly compensated employees (HCEs), who are generally exempt from overtime, the rules are also changing:
- Starting July 1, 2024: The annual salary threshold for HCEs will increase from $107,432 to $132,964.
- Starting January 1, 2025: The threshold will rise again to $151,164.
- Every Three Years: The HCE threshold will also be updated based on wage data.
Despite these changes, the duties test, which assesses the type of work an employee does to determine their exemption status, will remain unchanged. Employers will need to ensure that even if an employee meets the new salary requirements, they still pass the duties test to be considered exempt from overtime pay.
These updates are designed to ensure that more workers receive fair compensation for their overtime hours, reflecting the rising cost of living and changes in the labor market since the last major update in 2020. For employers, this means reviewing their current employee classifications and payroll practices to ensure compliance with the new regulations.
Hypothetical Scenarios
Let’s explore a few hypothetical scenarios to understand how Wisconsin’s overtime laws and the new federal regulations could play out in real-world situations. These examples illustrate the challenges employers might face and the steps they should take to remain compliant.
Scenario 1: Unauthorized Overtime
Imagine a scenario where an employee, Jane, works in a retail store and ends up staying late one evening to finish restocking inventory. Jane works 45 hours that week, but her manager did not authorize the extra time. Despite the lack of approval, under Wisconsin law, the employer is required to pay Jane for the 5 hours of overtime at time-and-a-half her regular rate. In this situation, the employer cannot refuse payment simply because the overtime wasn’t pre-approved. To avoid similar situations in the future, HR experts recommend setting clear policies and communicating them to all employees, ensuring they understand that unauthorized overtime must be avoided but will still be compensated if worked.
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Scenario 2: Salaried Employee Under New Rules
Consider a small marketing firm where a salaried employee, John, earns $700 per week. Under the current federal rules, John is exempt from overtime because his salary exceeds the $684 weekly threshold. However, with the new rules coming into effect on July 1, 2024, the minimum salary required for exemption will rise to $844 per week. This means that unless John receives a salary increase, he will no longer be considered exempt and will be entitled to overtime pay for any hours worked over 40 in a week. The employer will need to decide whether to increase John’s salary to maintain his exempt status or reclassify him as non-exempt and adjust payroll practices accordingly.
Scenario 3: Averaging Hours Over Two Weeks
Another common scenario involves an employer trying to average an employee’s hours over two weeks to avoid paying overtime. For instance, an employee works 35 hours one week and 45 hours the next. The employer suggests averaging these hours to show 40 hours each week, thereby eliminating the need for overtime pay. However, under Wisconsin law, this practice is not permissible. Overtime must be calculated based on the hours worked each individual week, not averaged over a pay period. Employers must ensure they are accurately tracking and compensating for overtime on a weekly basis to avoid legal issues.
HR Expert Insights
From an HR perspective, managing overtime effectively requires more than just adhering to the legal requirements. It involves proactive planning, clear communication, and proper record-keeping. Here are some best practices for Wisconsin employers:
- Regularly Review Employee Classifications: With the upcoming changes to federal overtime rules, it’s essential to regularly review which employees are classified as exempt and non-exempt. This review should include an assessment of both the salary and duties of each position to ensure compliance with both state and federal laws.
- Implement Overtime Policies: Employers should establish clear policies regarding overtime work, including guidelines for obtaining authorization before working overtime. These policies should be communicated to all employees and consistently enforced to prevent unauthorized overtime from becoming a regular practice.
- Maintain Accurate Records: Keeping detailed records of all hours worked, including overtime, is critical. This documentation can help protect the employer in the event of a dispute or audit. It’s also important to track changes in employee classifications and salary adjustments related to the new overtime rules.
- Prepare for Salary Adjustments: With the new federal overtime rules, some employees currently classified as exempt will need salary adjustments to remain exempt. Employers should budget for these increases and decide whether it is more cost-effective to raise salaries or reclassify employees as non-exempt.
- Communicate Changes to Employees: As the new rules take effect, it’s important to communicate any changes in classification or compensation to employees. This helps to maintain transparency and trust, ensuring that employees understand how the changes affect them and why they are necessary.
Potential Legal Challenges
While the new overtime rules take effect this year, there is a possibility that they could face legal challenges, similar to what occurred with previous overtime regulation changes. In 2016, a similar rule was blocked by a federal court before it could be implemented. Although it is important for employers to prepare for the changes as if they will take effect, staying informed about any legal developments is equally crucial. Employers should consult with legal advisors or HR professionals to ensure they are ready for any eventualities.
Conclusion
The new salary thresholds for exempt employees, coupled with Wisconsin’s specific overtime laws, present significant changes for many employers and employees. By understanding these rules and taking proactive steps to comply, employers can ensure they are prepared for the upcoming changes. Whether it involves reviewing employee classifications, adjusting salaries, or updating payroll systems, the key is to stay informed and take action.
The experts at SustainableHR PEO are always ready to assist you in navigating HR rules and regulations like these. Book a call with us now to get started!
