Daily Compliance Item- 5.18.16- Current Event

A new expense looms for college athletic departments


After years of sharply raising the compensation for some of their best-known employees, college sports programs across the nation are now facing the prospect of having to make substantial pay increases for many of their less prominent workers.

The U.S. Department of Labor, acting on a directive President Obama issued in March 2014, on Tuesday revealed changes in the Fair Labor Standards Act (FLSA) that beginning this fall will basically double the amount of money workers must make to be exempt from federal overtime-pay requirements.

Absent an exception for colleges or some other form of intervention, this update to rules and salary thresholds that have been unchanged since 2004 could require athletics departments to start giving hundreds of thousands of dollars more a year in pay and benefits to an array of staffers from assistant coaches, to trainers, to ticket-office personnel.

Unless they receive sufficient salary increases, these types of employees will have to become hourly wage-earners who are either limited to 40-hour work weeks or paid at overtime rates when they exceed 40 hours.

The FLSA changes are “a concerning issue in a lot of industries,” University of Oregon deputy athletics director Eric Roedl said late last week. “But in ours, there is so much travel, so much work on nights and weekends that it’s difficult to manage.”

At present, workers who exceed 40 hours on the job in a week do not have to be paid at overtime rates if they meet three criteria:

–They are employed on a salaried basis.

–Their jobs are primarily professional, administrative or executive.

–They make at least $23,660 per year.

Under the new FLSA rules, scheduled to take effect Dec. 1, they will have to make at least $47,476 a year to be exempt from overtime.

An issue, specifically, for NCAA Division I athletics departments is that this new expense is coming on the heels of a series of changes in NCAA rules designed to increase the benefits athletes are allowed to receive.

In April 2014, the membership voted to allow schools to provide athletes with basically unlimited food service. Beginning with the start of the 2015-16 school year, schools have been permitted to award scholarships based on the full cost of attending school, not just the traditional tuition, room, board, books and fees. Late last month, another vote let schools pay all of the summer-school costs of athletes who have partial scholarships during the regular academic year; previously, athletes on partial scholarships during the regular year were limited to a similar proportion of aid for summer school.

Meanwhile, many major-college athletics programs have committed themselves to multi-year, multi-million-dollar contracts with coaches and athletics directors, and to facilities projects that involve much longer-term financing.

Oregon’s Roedl said providing unlimited food and cost-of-attendance-based scholarships alone has added nearly $1.5 million a year to his department’s expenses.

He said that because the new regulations had not been finalized, his department had not yet worked out the specifics of how it will handle the changes or how much they will cost. However, he said “it is safe to say the financial impact would be well into six figures.”

For a program like Oregon’s, which has an annual operating budget of more than $100 million, that’s significant but not insurmountable.

For Arkansas State, it’s a much more serious issue.

Athletics director Terry Mohajir, citing information he had received from his university’s human-resources office, said last week 34 of his department’s 72 employees currently have salaries that could shift them from exempt status to non-exempt. Based on those employees’ current pay, he estimated it will cost his department roughly $500,000 in salary increases to keep them exempt – and the salary increases will trigger another $200,000 in benefits costs.

The estimated $700,000 increase is against a current annual operating budget of nearly $30 million, Mohajir said.

“Obviously you do what the law tells you that you have to do,” Mohajir said. “It may affect people’s employment status. It may affect people’s workload.”

Among the hundreds of thousands of responses that the Labor Department received during a 60-day comment period last year, one came from Western Carolina athletics director Randy Eaton.

Writing in July 2015, he estimated that his department had 68 full-time employees, 55 of whom have been exempt – and he added that he would need to make firings because of the increased costs he was facing for salaries and/or overtime.

“While I can tell you with great certainty that I would not be alone in my ultimate course of action,” he wrote, “I do not look forward to the day when I must look 10%-20% of my employees in the eye to tell them I am cutting their position due to federally mandated changes in the FLSA standards.”

Last week, Eaton said 68 of his 70 employees are currently exempt, including 39 whose salaries fall below the new $47,476 threshold. Two of those 39, he said, are head coaches. He said he was examining a range of alternatives, including putting some employees on nine-month appointments.

A Labor Department document addressing the new rules’ impact on the higher-education sector does contain one section that could offer help to some athletics programs, although it could be tricky. The document says coaches may be exempt regardless of salary “if their primary duty is teaching, which may include instructing athletes in how to perform their sport. If, however, their duties primarily include recruiting athletes or doing manual labor, they are not considered teachers.”

Still, outside experts predicted possible consequences for athletics programs.

At schools in the NCAA’s Football Championship Subdivision and Divisions II and III, “I think they’re going to have to curtail opportunities (for athletes) because of this,” said Mike Aitken, the vice president for governmental affairs for the Society for Human Resource Management, a group representing nearly 300,000 professionals in the field that voiced its opposition to such a dramatic increase in the salary threshold.

He pointed out that because colleges will be facing payroll issues across their campuses from the FLSA change, they may be very limited in how much they can help their athletics departments.

With so many athletics programs dependent on student fees or substantial institutional funding, some schools “may pass this cost along to students and their families” in the form of increased athletic fees and/or tuition, said Jennifer Donnelly — a vice president with Sibson Consulting, whose clients include numerous colleges.

Schools, she said, “are not going to have a lot of great options.”

This article was selected for educational purposes only.

The opinions expressed in the Daily Compliance Item are the author’s and the author’s alone, and are not endorsed by The BIG EAST Conference or JumpForward. The Daily Compliance Item is not a substitute for a compliance office, case specific research, or the NCAA Bylaws. Do some homework, ask around, and get it right.

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