Should you always report to faculty with equal or higher rank?
Universities are not like the army, in which your commanding officer is always someone of higher rank than you.

For instance, it is common for an academic department to have a chair or head who is drawn from among the faculty.  Many (most?) universities allow an associate professor to serve as chair (some would even allow an assistant professor).  In such cases, an associate professor can certainly be the "boss" of a full professor.

I don't think there is anything unusual or worrisome about the proposed organization you're describing.