By Mike Grassi, of Sports Law Associates, LLC
On May 17, the United States Department of Labor announced changes to the Fair Labor Standards Act (FLSA) as a result of a 2014 directive from President Obama. The most significant change is the two-fold increase of the twelve-year-old minimum salary floor that employers must pay to qualify for most of the overtime pay exemptions. The changes, which go into effect at the end of the year, already have colleges and universities actively reviewing their workforce classifications and may require difficult decisions regarding the status of many athletic department employees, including coaches, certified athletic trainers, and academic advisors, in the months ahead.
Employers, including colleges and universities, have three compliance options: 1) pay employees at or above the new minimum salary and ensure that their primary work duties meet the additional criteria for one of the applicable exemptions; 2) pay employees below the new target and assign job duties that align with an exemption that does not require the minimum salary or has a reduced salary minimum; or 3) try to limit the compensable hours non-exempt employees work to 40 or less in any given week and pay overtime where the limitations are exceeded. Of course, there is always the option to do nothing and hope for the best but remember FLSA penalties are costly and noncompliance with federal law is dangerous.
The third option is problematic for many schools that are looking to decrease rather than increase athletics operating expenses. To fully understand the potential impact for athletics departments in particular, consider the fact that certain travel time must often be included in an employee’s weekly hourly tally when calculating overtime pay for non-exempt employees and lengthy travel schedules for collegiate teams can add up quickly for coaches, trainers, communications workers, paid managers and the myriad of new positions that have been showing up on team travel manifests. As a general rule, time spent commuting to and from the office is not included, whereas travel time that occurs during an employee’s normal working hours will count towards the total hours worked in any given week. Determining how to record time spent traveling outside of normal working hours is more complicated. The entire time travelled during a single-day trip to a competition or to visit a recruit, for example, must be included in the employee’s working hours total, whereas only the hours travelled during the employee’s normal work day will count if the trip is overnight, unless the employee is engaged in compensable work during that time. Such work includes meeting with recruits and their families, watching game film during a flight or on the bus, devising game strategy or analyzing performance on the trip back to campus, driving a van, supervising academic study-halls or working on equipment. It is worth noting that supervision of student-athletes during travel is considered the performance of work and must be included in an employee’s total work hours. Therefore, it is advisable to check with your human resource department to determine, for example, whether it is permissible to assign supervisory responsibility to one person only and to fully understand the rules that apply to “on-call” time. Moreover, employees cannot waive their entitlement to overtime and employers have to pay for hours worked. For this reason in particular, finding an exemption that fits is a worthwhile exercise.
Pay employees at or above the new minimum salary (or the limited reduced salary exemption) and ensure that their primary duties meet the additional criteria for the applicable exemption
Previously, a “white collar” employee (i.e., persons employed in an executive, administrative, professional, outside sales, or certain computer occupations) was exempt from overtime pay if she met the following three requirements: (1) she was employed on a salary basis, (2) she earned at least $455 per week ($23,660 per year), and (3) her primary duty fell under one of the “white collar” exemptions. Beginning on December 1, 2016, however, the base salary level for these exemptions will increase to $913 per week and $47,476 annually. This increase effectively converts many formerly exempt employees to non-exempt status.
For those athletics personnel that are paid at or above the new base salary level, it is important to ensure that their primary duty, defined as the “the principal, main, major or most important duty that the employee performs” is FLSA exempt work. Assessing primary duty can be complicated and requires a genuine appraisal of the actual work performed rather than relying on written job descriptions or creative job titles. After identifying the totality of duties each employee performs, the test requires a subjective assessment of the relative importance of the exempt work, how much time the employee spends on exempt versus any additional non-exempt tasks, whether she uses independent judgment or is closely supervised when performing exempt duties, and how the exempt work is compensated when compared to work performed by other exempt and non-exempt employees. Finally, primary duty assessments requires a qualitative analysis. The DOL expressly refused to put a quantitative limitation of the performance of non-exempt work but noted that a “disproportionate amount of time spent on non-exempt duties may call into question whether an employee is” exempt. As a general rule, it helps if at least half of an employee’s time is devoted to exempt work.
Certain athletics employees who are paid the minimum $47,476 salary may qualify for some “white collar” exemptions provided they use discretion and independent judgment in their work:
Executive: This might include athletics employees whose primary duty consists of (1) managing a recognized part of the athletic department, or a subdivision such as the sports medicine program, the communications department, or a team, (2) directing the work of the equivalent of two or more full-time employees on a regular basis, and (3) exercising significant influence regarding employment decisions, including the hiring, promotion, and termination of subordinates
Administrative: Applicable if the employee’s office or non-manual work is directly related to the management or business operations of the school. This may include recruiting, budgeting, fundraising, communications and marketing, facilities management, and game scheduling if the employee regularly exercises discretion or independent judgment when performing these significant tasks. For example, assistant coaches with actual authority to devise recruiting strategy, including determining which athletes to recruit and offer scholarships, could meet this exemption if such recruiting is the primary duty of her job. Assistant coaches who recruit under the direct oversight of the head coach and do not have any real discretion in this area, would not fulfill this exemption. Head athletics trainers, directors of communications and marketing, and equipment managers could fit this exemption as well.
Learned Professionals (Other than teachers, lawyers, and doctors): This exemption is for those employees whose primary duty is predominantly intellectual in character in a field of science or learning and the employee’s advanced knowledge is the result of a prolonged course of specialized instruction. Therefore, many certified athletic trainers may be exempt if they have a four-year degree in their field and use such knowledge in the course of their work.
Athletic positions typically include a variety of the work described above. Luckily, the FLSA allows for a combination exemption where the minimum salary threshold is met and the primary duties are an overlapping mix of exempt work. The combined exemption still requires payment of the minimum salary with a notable caveat that is applicable to certain athletic advisor positions. An employee whose primary duty consists of “administrative functions directly related to academic instruction or training,” or assisting with academic issues, might fall under the academic administrative exemption, so long as she earns at least $47,476 per year or the minimum salary for teachers at the institution, whichever is lower.
Assign primary duties that align with an exemption that does not require a minimum salary threshold.
The notable exemption that many schools currently rely on when classifying athletics employees as exempt even though they earn less than the minimum salary level is one that focuses on teaching. If the employee’s primary duty is “teaching, tutoring, instructing or lecturing in the activity of imparting knowledge” and she “is employed and engaged in this activity as a teacher in an educational establishment by which the employee is employed,” then the employee is exempt from overtime pay regardless of salary level. For example, a full-time coach whose primary duty involves instructing student-athletes on performance of the sport, developing and implementing team concepts, and teaching individual skills, would likely fulfill the teacher exemption, provided the coach uses independent judgment and is not closely supervised while working. A coach who also teaches classes may meet the exemption as well. Determining whether assistant coaches are “teachers” is more difficult. Assistant coaches might not have authority to implement team concepts, and instead work under the direction of the head coach at all times during practices, running conditioning drills, overseeing team dinners, or supervising players on the road. Similarly, if an assistant coach’s primary duties involve recruiting or administrative tasks such as filing expense reports, booking travel, ordering and issuing equipment, or operations, she likely will not meet this test. Each case requires its own fact based assessment.
Finally, athletics employees whose primary duties include sales, obtaining orders or contracts for services, or the paid use of facilities may qualify for the outside sales exemption which does not have a minimum salary. However, this exemption is difficult to meet in athletics because the employee must customarily and regularly work off-site.
So what are the options for athletic departments faced with the prospect of numerous employees becoming eligible for overtime pay by year’s end? It will require a thorough review of each athletic position, regarding both its primary duties and current salary status, and should involve assistance from the Human Resources Department and General Counsel, where available. Employees earning close to the minimum exempt salary level may see raises to avoid overtime pay, assuming their duties are exempt as well. Others may simply receive their overtime pay if doing so would cost less than $47,476. Some schools could take the step of lowering salaries so that total compensation including overtime pay will result in a net change of zero. In addition, public schools have the option to take advantage of certain compensatory time as an alternative to overtime compensation, a topic beyond the scope of this discussion.
Regardless of the methods utilized to handle the new overtime standards, athletic departments should closely manage non-exempt employee work hours in order to limit budgetary dilemmas. All work by these employees, including any in excess of 40 hours, must be recorded and compensated, even where the employee completes the work off-the-clock voluntarily. In an age of advanced technology in which employees can access their work virtually anywhere, athletic departments must be diligent in monitoring employee hours. Head coaches and supervisors should be trained regarding the new rules so that the duties of their subordinates are not altered in a way that could change an employee’s exempt status or so non-exempt employees are not directed or allowed to work overtime without obtaining permission in advance. Employees should likewise be trained so as not to put their own employment status in jeopardy.
With the implementation of the new overtime pay standards of the FLSA, the budgetary obligations of athletic departments just became vastly more complicated. The NCAA released a valuable white paper review of the new regulations titled “Payment of Coaches & Athletic Trainers under Federal Law” to aid in the upcoming transition. Schools will also need to determine how to finance the resulting pay increases, while also facing a continued campus arms race and the prospect of expanding compensation for student-athletes. Student fees, while a common source of revenue for athletic departments, have been under increased scrutiny as of late, and therefore may not present a practical solution. Thus, it appears as though human resource directors and general counsels will be working overtime between now and December to figure out how to pay many of their employees under the updated FLSA regulations.
Grassi, of Sports Law Associates, LLC, is a graduate of Chapman University Fowler School of Law and is licensed in California.
