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Facility Management: Wage Differential

When it comes to managing overtime for your staff, the issues — and laws — are by no means clear-cut.

By Joe Wang

Late last year, a federal judge in Texas halted the implementation of new Department of Labor (DOL) federal overtime rules that would have raised the salary threshold for “exempt” employees (employees who are not eligible for overtime pay) from $23,660 to $47,476. Had the rule gone into effect, many more workers would have been eligible for time-and-a-half overtime pay.

While the possibility of the new overtime rule being implemented down the road still exists, tennis facility owners and managers continue to struggle with existing overtime rules, and ensuring their compensation structure and overtime policies are in compliance with the Fair Labor Standards Act (FLSA).

Facilities that classify their teaching professionals as exempt under “white-collar” exemptions have difficulty fitting job descriptions to comply with the FLSA’s “administrative” or “professional duties” definitions. And tennis clubs opting to avoid these employment issues by using third-party contractors face customer-service and member satisfaction issues as they give up scheduling and pricing control over independent contractors who service multiple clients.

Classifying Tennis Pros

So how should facility owners and managers classify their tennis pros relative to overtime compensation? A potential solution might be found in Section 7(i) of the FLSA, which exempts from overtime employees of “a retail or service establishment” whose regular rate of pay is more than one-and-one-half times the minimum wage and if more than half their compensation for a representative period represents commissions on goods or services.

It is important to note there currently is no legal precedent of a tennis-specific club demonstrating compliance with the FLSA’s overtime rules by establishing that its teaching pros fall under the 7(i) exemption. However, the exemption is widely used in other commission-heavy industries, such as the automobile dealership industry.

Ultimately, the determination of whether tennis professionals can be classified as exempt from overtime under the 7(i) exemption will have to be made on a case-by-case basis, depending on each club’s compensation structure, business structure, and state law. These issues should be discussed with your facility or club’s attorney, or with a labor attorney.

Test for Compliance

If a retail or service elects to use the 7(i) overtime exemption, three conditions must be met:

1. The employee must be employed by a retail or service establishment.
2. The employee’s regular rate of pay must exceed one-and-one-half times the applicable minimum wage for every hour worked in a workweek in which overtime hours are worked.
3. More than half of the employee’s total earnings in a representative period must consist of commissions.

The DOL defines retail and service businesses as “establishments 75 percent of whose annual dollar volume of sales of goods and services is not for resale and is recognized as retail sales or services in the particular industry.” While there is no existing precedent for tennis clubs, the DOL did issue an opinion letter stating that a health and athletic club with trainers, aerobic instructors and tennis pros would meet this condition if 75 percent or more of its sales of services was considered retail. Given the nature of a tennis lesson, this condition is easily satisfied.

The DOL has also stated: “Typically, a retail or service establishment is one which sells goods or services to the general public.” Even if a club’s membership may not be purchased by the general public, the DOL recognizes that if certain facilities within the club are open and available to the public, as well as to club members, and are a “distinct physical place of business” separate from other facilities and qualify as an “establishment,” then the exemption may apply.

Therefore, private clubs should take into consideration: (1) whether teaching services can also be open for sale to the non-member general public with no restriction; (2) whether the physical location of the tennis facilities is separate from other areas of the club; and (3) whether the structure of the operation and management and duties of the tennis services and teaching professionals is exclusive to the tennis portion of the business and does not cross over to other areas of the club.

Meeting the other compliance conditions — regular rate of pay exceeding one-and-a-half times minimum wage and more than half of total earnings consisting of commissions — will be specific to each facility. When making this calculation, it is important to ensure that: (1) commissions are true commissions that vary and are tied to volume of sales, and are not just a regular fixed fee; (2) accurate records are kept of employee hours and pay; and (3) representative periods used to calculate a particular employee’s compensation must not be less than a month.

Ultimately, club owners and tennis directors must do an independent evaluation on whether they can categorize their tennis pros as exempt from overtime under the FLSA 7(i) exemption. Given the potential benefits to a tennis club business, you should at least explore this with your attorney.

Overtime Exemption: Benefits and Risks for Tennis Facilities

Benefits:

• With the FLSA 7(i) exemption, there is no need to conduct complex calculations and budgeting for overtime when dealing with varying commissions and employee teaching schedules.
• There is no minimum salary requirement that other overtime exemptions require.
• Allows tennis professionals to focus on teaching tennis rather than meeting an “administrative duties” test to comply with “white-collar” overtime exemptions.
• Promotes an incentive to sell more lessons for the business and removes the chilling effect overtime management places on a teaching pro’s hours and ability to earn income.

Risks:

• There is no specific case law establishing a legal precedent that the 7(i) exemption can be applied to a tennis club.
• In locations with concurrent state wage laws, some states may not recognize the application of the 7(i) exemption.
• Private tennis and country clubs may confront additional compliance issues when trying to qualify as a “retail establishment” under the FLSA.

Joe Wang is Assistant General Manager/Director of Tennis at Army Navy Country Club in Arlington, VA. He has also held positions as a business strategy analyst at Apple Inc. and Nokia. Mr. Wang is a USPTA teaching pro and has a J.D. from Villanova and an MBA from Georgetown, where he has also worked as an adjunct professor in the McDonough School of Business.

From the March 2017 issue
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