The FLSA, Overtime, and Camps: Finding a Path to Compliance

Emmanuel Boulukos, IceMiller LLP
November 2016
Campers reading by lantern light

On May 18 of this year, the U.S. Department of Labor (DOL) revealed its new regulations concerning the "white collar" overtime exemptions to the Fair Labor Standards Act (FLSA). The changes, as expected, are dramatic from a cost perspective, more than doubling the minimum salary required for most of the white collar exemptions from approximately $23,660 to $47,476, on an annualized basis.

Consequently, as the December 1, 2016 compliance date grows near, many employers, including camps, face difficult choices concerning employees currently classified as overtime exempt: Increase salaries substantially? Pay on an hourly basis? Reduce hours? Pay a salary and overtime premiums? What works for one employer may not for another. Cost, legal risk, recruiting, employee relations, and ease of administration must all be considered in negotiating the path ahead. One thing is for certain: misclassifying employees as exempt can prove to be a very costly error. The good news is that some camps will be unaffected by these changes. As discussed below, many camps can take advantage of the FLSA's blanket "seasonal" overtime exemption for certain amusement or recreational establishments, organized camps, and religious or nonprofit educational conference centers ("13(a)(3) exemption"). See 29 U.S.C. § 213(a) (3). A smaller subset of camps (primarily nonprofits) and their employees may not be subject to the coverage of the FLSA whatsoever.

For many other camps (and organizations involved in camping) — especially those with full-time, year-round staff — the new salary requirements are a reality that must soon be addressed. Even camps that believe they are unaffected by these changes would be well-advised to take this opportunity to re-check assumptions about coverage status or the application of the 13(a)(3) exemption. While the task may seem daunting, camp professionals should not despair: With patience, planning, and a full understanding of legal options, achieving compliance with the FLSA's overtime requirements is well within reach.

This article intends to provide ACA members with an overview of the key FLSA provisions relevant to determining the overtime entitlements of camp employees, including the 13(a)(3) exemption, updated white collar regulations, and the FLSA's threshold coverage standards, and to address some of the central concerns raised by the new regulations. This article is provided for informational purposes only, and should not be construed as a substitute for legal advice. We strongly encourage members to discuss the matters addressed in this article with their legal counsel.

FLSA Overtime Requirements — A Refresher

Before delving into overtime issues specific to the operation of camps, a brief refresher on the FLSA's basic overtime requirements is in order. Generally speaking, the FLSA requires that covered nonexempt employees (i.e., employees who are ineligible for an exemption from the FLSA's minimum wage and overtime requirements) receive 1.5 times ("time-and-a-half") their "regular rate" of pay for each hour worked in excess of 40 in a single workweek. Hours worked may not be averaged over two workweeks. An employee's entitlement to overtime may not be waived or negotiated. A nonexempt employee must be compensated for unauthorized overtime — but may be disciplined for working overtime in violation of employer policies.

The default presumption under the FLSA is that all covered employees are entitled to overtime. However, the FLSA does provide a number of exemptions to its overtime (and minimum wage) requirements, including the white collar exemptions (which apply on an employee-byemployee basis) and the 13(a)(3) exemption (which may apply to an entire camp "establishment"). As a general rule, the burden is on the employer to prove the applicability of an exemption. Notably, states and municipalities may institute their own overtime (and minimum wage) standards (including exemption requirements) that are more stringent than FLSA rules. If an employer is subject to both a state and federal overtime standard, the more stringent of the two controls.

For a nonexempt hourly employee (assuming no bonuses are paid), the "regular rate" is simply the employee's non-overtime hourly rate of pay. An hourly employee's overtime pay is 1.5 times the regular rate for each hour worked in excess of 40 per week. For a salaried, overtime-eligible employee, his/her "regular rate" is calculated by dividing the weekly salary by the number of hours that the salary is intended to compensate. According to the DOL "interpretative" regulations, the employee — whether salaried or hourly — then receives 1.5 times of his/her regular rate for all hours worked in excess of 40 per week.

Violations of the FLSA's overtime requirements may result in damages including back pay (the amount of overtime owed), liquidated damages (an amount equal to the amount of overtime owed), attorney's fees, and costs. The DOL may also assess civil penalties for willful or repeated violations of the FLSA's overtime or minimum wage requirements. The FLSA's statute of limitations is two (2) years, but may be extended to three (3) years for willful violations. Because FLSA lawsuits are often brought as "collective actions" (a type of class action specific to the FLSA), they are often expensive and timeconsuming to defend.

Are You Covered?

Stepping back from the overtime rules for a moment, in order for the FLSA to apply at all, certain threshold coverage requirements must be met. In almost all cases, employees of for-profit businesses are covered. As to the employees of nonprofits (and small for-profit employers), however, the existence of coverage should not be assumed or dismissed without consideration of specific facts and circumstances.

Employees may be subject to the FLSA's minimum wage and overtime requirements by two methods: "individual coverage" or "enterprise coverage." Enterprise coverage generally extends to organizations or businesses that have "an annual dollar volume of sales or business done of $500,000," as well as "hospitals, businesses providing medical or nursing care for residents, schools and preschools, and government agencies." See U.S. Department of Labor, Wage and Hour Division (WHD) Fact Sheet No. 14, Coverage Under the Fair Labor Standards Act. According to the DOL, however, enterprise coverage does not apply to nonprofit organizations (other than those of the type noted above), "unless they engage in ordinary commercial activities that result in sales made or business done, such as operating a gift shop or providing veterinary services for a fee." DOL WHD Fact Sheet No. 14A, Non-Profit Organizations and the Fair Labor Standards Act (FLSA). Moreover, where a nonprofit engages in some covered and some uncovered activities, "enterprise coverage applies only to the activities performed for a business purpose; it does not extend to the organization's charitable activities." DOL WHD Fact Sheet No. 14A.

However, a finding that a nonprofit is not subject to enterprise coverage does not conclude the coverage analysis. Indeed, employees of nonprofits that are outside the scope of enterprise coverage "may still be entitled to [the FLSA's] protections if [such employees] are individually engaged in interstate commerce or in the production of goods for interstate commerce, or in any closely-related process or occupation directly essential to such production." DOL WHD Fact Sheet No. 14A (emphasis added). Although a detailed discussion of the application of the interstate commerce requirement to individual employees is beyond the scope of this article, suffice it to say that the standard is quite broad.

As this general overview indicates, coverage determinations involve a nuanced, fact-specific analysis. It is not as simple as maintaining nonprofit status or having an annual dollar volume of less than $500,000. Moreover, in some jurisdictions, state or local overtime laws may apply to camp employees despite a lack of FLSA coverage. Consequently, before assuming that coverage does not apply, employers should consult with legal counsel.

What About the "Seasonal" Exemption?

Even if a camp is covered by the FLSA, the white collar exemptions are not the only potential route to properly classifying employees as overtime exempt. As noted above, many seasonal camps have long relied on the 13(a)(3) "seasonal" overtime and minimum wage exemption. Unlike the white collar exemptions, the applicability of the 13(a)(3) exemption focuses on the operations of the organization itself, not the duties of individual employees. If it applies to a camp's entire operation, the camp's employees are exempt from the FLSA irrespective of whether they individually qualify for a white collar exemption — and there is no minimum salary requirement.

Specifically, Section 13(a)(3) provides an exemption from its minimum wage and overtime provisions for any employee employed by an amusement or recreational establishment, an organized camp, or religious or nonprofit educational conference center if (A) the establishment does not operate for more than seven months in any calendar year, or (B) during the preceding calendar year, its average receipts for any six months of such year were not more than 33 and 1/3 percent of its average receipts for the other six months of the year. While the exemption may seem simple enough at first glance, the fine details of the exemption require careful parsing.

"Establishment" 

Critically, in this context, the term "establishment," as defined in the regulations to the FLSA, refers to "a distinct physical place of business, rather than to an entire business or enterprise, which may include several distinct places of business." One particular part of a larger enterprise may qualify for the exemption, whereas other parts of the enterprise do not. For example, a summer camp operated by a youth organization that also provides other year round services may still be able to take advantage of the 13(a)(3) exemption as to the camp only.

As to the definition of "camp" in this context, non-binding guidance from the DOL explains as follows:

An organized camp characteristically provides room and board in a rustic setting over a sustained period of time. An organized camp is one with a program of activities and sustained supervision, provided for a set fee. The American Camping Association defines a "camp" as "a sustained experience which provides a creative recreational and educational opportunity in group living in the out of doors. It utilizes trained leadership and the resources of natural surroundings to contribute to each camper's mental, physical, social, and spiritual growth." See DOL WHD Field Operations Handbook, at Ch. 25j00.

"Fewer Than Seven Months of Operation"

Many seasonal camps qualify for the first "prong" of the exemption; in that they operate for seven or fewer months each calendar year. The DOL explains that an establishment will be considered to operate for seven months or fewer even if it engages in some activity during the off-season, such as maintenance of its facilities or ordering supplies.

"The 33 and 1/3 Percent Test" 

Camps that fail to meet the sevenmonth requirement may still qualify under the "33 and 1/3 percent" prong of the exemption. The DOL provides the following helpful example:

An amusement or recreational establishment operated for nine months in the preceding calendar year. The establishment was closed during December, January, and February. The total receipts for May, June, July, August, September and October (the six months in which the receipts were largest) totaled $260,000, a monthly average of $43,333; the total receipts for the other six months totaled $75,000, a monthly average of $12,500. Because the average receipts of the latter six months were not more than 33-1/3% of the average receipts for the other six months of the year, the Section 13(a)(3) exemption would apply.

Seems straightforward enough, right? Simply compare your camp's lowest six months of receipts to its highest six months of receipts. So long as your camp's average monthly receipts for its lowest six months are no more than 33 and 1/3 percent of its average monthly receipts for its highest six months, your camp qualifies for the exemption.

But there is a catch. What does the FLSA mean by receipts? Does "receipts" mean revenues accrued during a certain period, or money actually received? Is it up to the employer to decide how to account for its receipts?

Several federal courts have provided guidance on this issue. They have held that "receipts," in this context, means "money actually received" during the period in question. The calculation of receipts does not depend on the particular employer's accounting system. Instead, what matters is when the establishment actually received the money.

Also, for nonprofit organizations, there is no clear rule as to whether donations and pledges count towards "receipts," but at least one federal court has ruled that they do. Given the general legal precedent on the definition of "receipts" for purposes of this exemption, it appears likely that most courts would agree.

The New White Collar Regulations

For camps that are covered by the FLSA and cannot take advantage of the 13(a)(3) exemption, the white collar exemptions are generally the most plausible route to lawfully classifying employees as overtime exempt. Unfortunately, in many cases, the new salary requirements may not be financially feasible. Although the changes to the white collar requirements are not particularly complex, the financial impact is substantial. The new regulations increase the minimum salary applicable to most of the white collar exemptions to $913 per week, or $47,476 per year — about twice the current minimum ($455/$23,660). The minimum salary for the "highly compensated" employee exemption has been increased to $134,000. The final regulations also allow employers to use certain bonus and incentive payments to account for up to 10% of the new salary level, and contain a mechanism for updating the minimum salary every three years. These changes go into effect on December 1, 2016.

Although the DOL had previously hinted that it might alter the "duties" tests for some or all of the white collar exemptions, the final changes are limited to the salary requirement. Moreover, as was the case under the prior regulations, the minimum salary requirement does not apply to otherwise exempt teachers, lawyers, outside sales people, and (some) medical professionals. Beyond the changes to the minimum salary requirement, the basic framework of the white collar exemptions remains intact. The exemptions (Administrative, Executive, Professional, Outside Sales, and Computer-Related Occupation) generally require that an employee meet the "duties" test for the particular exemption, and that he or she be paid the minimum salary required on a "salary or fee basis," which is not subject to reduction based on quality or quantity of work performed.

Whether an employee meets the "duties" requirement of a particular exemption depends on the duties they actually perform, not job titles or position descriptions.

Where Do We Go From Here? 

As noted above, the advent of the new white collar regulations is an opportunity for all camps to review the overtime status of their employees under the FLSA (and potentially state and local law as well). As to camps that are not covered by the FLSA or an equivalent state law, or are eligible for the 13(a) (3) exemption, the new rules do not alter the status quo.

For camps that must contend with the new regulations, there are three primary areas of concern. First, if meeting the new minimum salary level is feasible, camps should also take this opportunity to ensure that the affected employees also meet the "duties" and "salary basis" requirements of the applicable exemption. If those requirements are not met, increasing salary level is an exercise in futility.

Second, as to employees who will become overtime-eligible as a result of the new regulations, camps must decide how they will structure pay moving forward. Many employers are unaware that paying an hourly wage plus overtime for hours over forty is but one lawful method of meeting the FLSA's overtime requirements.

Other potential options include a salary plus overtime or a fixed salary for fluctuating hours (known as the "fluctuating workweek" method). And, of course, limiting employees to 40 hours or less per week is always a possibility. As noted at the beginning of this article, cost, the legal requirements of each pay method, impact on recruiting, employee relations, and ease of administration are all important factors to consider in making this determination.

Third, and finally, camps must consider how they will track the hours of nonexempt employees, and which hours will be deemed "compensable" for the purposes of calculating overtime. Particularly for overnight camps where the line between on and off-duty is gray at best, or where staff are "on-call" at odd hours, making these determinations well in advance of the next camp season or sessions, and adjusting operations and employee policies accordingly, is absolutely essential.

Although these complex and overlapping legal standards—and the tough decisions they sometimes engender—may seem overwhelming, with advance planning and the assistance of counsel, they can be navigated successfully. A key point to remember:

When it comes to complying with the FLSA's overtime requirements, there is no single answer that fits all camps — paying close attention to your particular circumstances is the best way to minimize disruption to your operation and avoid potential liability.

Photo courtesy of Sanborn Western Camps, Florissant, CO.