How the New Overtime Pay Rule May Especially Impact Women

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How the New Overtime Pay Rule May Especially Impact Women


On May 18, President Obama announced a new rule that redefines who's eligible for overtime pay.

The rule doubles the eligible salary threshold from $23,660 to $47,476, meaning that Americans making under $47,476 annually are now covered under the update, which goes into effect December 1, 2016.

The rule is expected to automatically extend overtime pay protections to 4.2 million Americans who weren't previously covered under the law -- the majority of whom are women. Single mothers, minority women and women in service and administrative occupations may have the most to gain.

Here's what you need to know.

What the Overtime Rule is About

Working overtime generally refers to when you work more than 40 hours in a week.

The Fair Labor Standards Act (FLSA) of 1938 gave most Americans the right to receive overtime pay at a minimum of 1.5 times their regular pay rate (known as "time and a half").

Most hourly and salaried employees were covered by this rule, but some workers were excluded based in part on a salary threshold that the government set.

Since 1975, the salary threshold has only been updated once to adjust for inflation -- in 2004, when the threshold was set at $23,660 annually, or $455 per week. This meant that if you were earning less than this amount, you'd automatically qualify to receive overtime protection.

But the salary threshold was still set too low to match inflation levels. Today, in large part because of continued inflation, this threshold protects only 7 percent of salaried workers -- in contrast to 62 percent in 1975.

Without receiving overtime pay, some employees today aren't even making minimum wage when their overtime hours are taken into account.

Here's more proof that change was needed: The current overtime salary threshold ($23,660) is below the federal poverty threshold for a family of four ($24,300).

The Obama administration decided that the overtime rule needed to be updated to extend coverage to more Americans.

Under the new rule, most salaried workers earning under $47,476 annually (or less than $913 per week) will be entitled to receive overtime pay.

But even if you earn above the salary threshold, you still may be eligible for overtime protection: You're generally only exempt if you both earn above the threshold and also primarily carry out executive, administrative or professional duties in your role.

If you're paid hourly and your annual earnings are equal to or below the threshold, you'll likely qualify for overtime pay.

Why Women May Be More Affected by This Rule

The White House anticipates that of the 4.2 million Americans who will be newly covered by the rule, around 2.3 million women will be affected (55.6 percent), compared to just 1.9 million men.

Why the disparity? It comes down to the fact that on the whole, men are paid more than women.

According to a PayScale survey of 1.4 million Americans between July 2013 and July 2015, women earn 25.6 percent less than men on the whole -- about 74 cents to every dollar. The median pay for women in the U.S. is only $44,800, while it's $60,200 for men.

What you might note: The median salary for women is below the new federal threshold to qualify for overtime pay.

In addition:

  • Single mothers may especially benefit. A 2015 report by the Institute for Women's Policy Research & MomsRising found that among all newly-covered female workers who earn salaries, single mothers are expected to benefit most from the changes in the overtime rule.

    According to the report, 44 percent of single mothers who were previously exempt from overtime coverage may now be covered, compared to 39 percent of single women without children, 35 percent of married women without children and 32 percent of married mothers. However, the report's findings were based on the government's original proposal that would set the overtime salary threshold of $50,440, not the $47,476 threshold the government actually implemented last week, so those percentages could actually differ.

  • Black and Hispanic women may especially benefit. Almost half of Black or Hispanic women workers who are currently exempt from overtime coverage may be newly covered under the updated salary threshold.

  • Women in service and administrative roles may be most likely to benefit. Compared to other occupational groups, women in these functions are likely to see the largest increase in coverage; more than three out of five may soon be automatically eligible. Women working in management, business and finance are least likely to be impacted by the new rule.

What This Might Look Like for You

Suppose you're a salaried store manager making $41,600 annually. Under the old rule, you earn more than the $23,660 salary threshold, so you likely wouldn't receive overtime protection (assuming that you primarily carry out executive, administrative or professional duties in your role).

Under the new rule, you're likely to qualify since your salary is under the $47,476 threshold.

Let's assume that on average you work 45 hours per week. This means that you're working five hours of unpaid overtime per week (based on a 40-hour workweek).

If you divide $41,600 by 52 weeks, you can calculate that your weekly earnings are $800. By then dividing $800 by 40 hours, you can determine that your hourly wage rate is $20.

Under the new rule, your overtime rate is $30 per hour. Since you work five hours of overtime per week, this means an additional $150 in pre-tax earnings per week.

Annually, this may equal an additional $7,800 -- or nearly 19 percent of your base salary -- in gross overtime pay that, under the old rule, you may not have earned.

How Employees and Employers Could Be Impacted

Once December 1st rolls around, it's important to note that your employer has a few choices about how to address the new overtime rule.

Your employer can either start paying you time and a half for your overtime hours, increase your salary so that it's equal to or greater to the new salary threshold (meaning you'll no longer receive automatic overtime coverage) or limit your working hours to 40 hours per week.

Since the update to the rule was announced, some critics of the law have spoken out.

The National Retail Federation (NRF) predicts that instead of receiving additional pay, most of the people affected by the rule will now have to deal with more restrictions and fewer advancement opportunities.

The NRF also claims that employers will respond to the rule by limiting their employees' hours or cutting their base pay to cancel out the increased costs of paying overtime.

However, others anticipate that the rule will bring widespread economic benefit. According to financial firm Goldman Sachs, the new rule is likely to create 100,000 new jobs in the US by the end of 2017, as employers may hire additional workers in an effort to avoid paying overtime.

Bottom Line

The new overtime rule is expected to extend overtime coverage to millions of Americans, the majority being women. If you think you may be affected, you can find additional information by visiting or contacting the Department of Labor's Wage and Hour Division.

About the Author: Mika Bhatia is a Staff Writer for Credit Karma. She's worked in financial services and tech, and has now found the perfect union of the two at Credit Karma. When she's not busy coming up with credit-related analogies, she's most likely supporting the Warriors, enjoying a fine cup of British tea or doing yoga (goal: completing a headstand without toppling over).

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