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So many complicated elements if student-athletes are designated as regular university employees* and the universe shifts.
I am just going to ignore the contractor idea -- it would be litigated quickly and I'm pretty confident wouldn't have legs. Unless Congress moved to somehow create a new special protected job category of "student athlete," that was NOT subject to federal requirements (and each state recognized such job category type), the notion that the contractor idea would fly is pretty thin, as is the notion that an "employee" would be exempt from federal protections. Additionally, EACH STATE would have to essentially move to approve such exceptions. Can't see this happening.
FLSA has pretty strict (and highly litigated) regulations regarding overtime pay and what is construed as work that must be compensated for hourly employees. What is the definition of "work hours" for a student-athlete? Practice time? Games? Getting dressed in the locker room? Press conferences after games? It is likely that many legal experts would consider the extraneous hours a student-athlete puts into things like team work-outs (that are not practices), team meetings, recovery time items (such as locker room PT/trainer items), team travel to/from games, etc. as work. Even if offered to an employee as "optional" if the employee completes it/does the work, it must be compensated (If you're wondering why this is, imagine if Target made the claim that when a Target manager asked employees if they wanted/could/optionally work some hours on a Sunday afternoon, and they voluntarily showed up and did it, that it wasn't paid work because it was "optional"..."optional" work is still paid work, legally).
Hours would need to all be documented and compensated and it's clear it would hit the OT limit in season for all teams (40 hrs/wk).
Many states have their own overtime regulations, too. For example, California requires overtime pay once an employee has exceeded 8 hours in a single day. California also has the HIGHEST minimum overtime exemption salary in the country BY FAR ($64,480). (For contrast, Alabama doesn't have its own overtime exemption salary -- so the federal requirement, $35,568/year, is the salaried minimum there). So the alternative to paying overtime (which would be $$$$) to designate student-athletes as overtime exempt employees, would require paying them a minimum of $64k/year in California.
Plus all of these kinds of questions, which would have legal and financial implications....
Does going to class and doing homework (to remain NCAA eligible) count as "work"? Assuming a stipulation of a student-athlete's employment is that they remain NCAA eligible, I could see this claim happening (not suggesting I agree with it though!).
Would student-athletes only be an employee during their practice/game season? What about "off-season" practices? Can you imagine the mess if a student-athlete - "not currently employed" - is injured during a summer work-out session with friends? Do colleges have employees who cannot perform?
I seem to recall there is a federal stipulation in financial aid legislation against colleges "paying" students to enroll (I'm not referring to merit scholarships here) when federal loans or grants are involved - e.g. a student's "refund" / aid cannot exceed the published cost of attendance. From what I understand this was put into place years ago as essentially an anti-bribery/fraud prevention regulation. Now there would be significant implications involving student-athletes who are using Pell grants, receiving state grants (places like Stanford automatically apply for/receive/"process" these kinds of grants for many students behind the scenes, so many students don't even know that part of their Stanford financial aid grant is being funded in part by these sources).
There are also, more bureaucratic, university-focused elements. For example, universities would likely need to establish entirely new sets of requirements/benefits for student-athletes, as their existing policies would not fit with the concept of a student-athlete, e.g. paid vacation time. Under California law, PTO (if offered, which it is not required to be offered), is considered equivalent to compensation, e.g. it can not expire and it has to be paid out at discharge (this is an extreme oversimplification of a complicated statute/scenario, but the general gist). Do student-athletes accrue vacation? How is it paid out? What about sick time? If they *don't* accrue vacation, what happens if a student needs to miss a practice for some reason? It's just unpaid time? That's how it would work in the "real world," but I can imagine the outcry in some corners.
EEOC regulations would also apply to student athlete jobs (aka student athletes). That would be fun.
If a player is injured during a game (or heck, even a practice), and can't practice or play in the short term, they could be eligible for short-term disability. California is a state that requires short-term disability insurance offered by employers (note that Alabama law does not). One cannot claim short-term disability AND "work" -- how does this fit with the way college athletics works? Can you imagine how rapidly such claims would happen?
University gear and meals -- outside of those provided during the course of paid working hours (or required for the position, e.g. uniform) -- could be considered a fringe benefit by the IRS and could be subject to taxation.
Student-athletes would be taxed on their earnings - which may seem obvious to all of us, but their tax liability may open up another can of worms (imagining some naive 19-year-olds here).
*Many students do currently work for their universities -- shelving books in the library, as a research assistant for a professor, as an RA, working in the dining hall, whatever. Often these are work-study jobs supported in whole or part by federal work-study funding or they are funded in-kind or by block payment. Even if they are not, they are generally <20 hrs. week (8-12 is most common) and usually exempted from university HR policies.