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DOL Announced Final Rule on Joint Employer Status

January 21, 2020 Alerts

The Department of Labor has issued a final rule on joint employer status, further clarifying the status of who may be a potential employer.

At a Glance

  • The Department of Labor (DOL) announced the final rule on joint employer status under the FLSA.
  • Provides a four-factor test to use in determining joint employer status in certain scenarios
  • Clarifies other factors that may apply in joint employer status determinations
  • Identifies situations that have less likelihood of having joint employer status
  • The Joint Employer final rule goes into effect 03/16/2020.

Introduction

Continuing the review of certain FLSA rules, the Department of Labor has issued a final rule on joint employer status, further clarifying the status of who may be a potential employer. The agency has updated the rule to provide two scenarios where an employee may have one or more joint employers, as well as, a four-factor test to determine if there is direct or indirect control exercised by the employer. This comes after the recent DOL announcements of the Final Overtime Rule and the Regular Rate Rule.

Updates

Per the DOL, an employee may have a joint employer relationship in two scenarios: 

  1. The employee has an employer who suffers, permits, or otherwise employs the employee to work, but another individual or entity simultaneously benefits from that work. An example of this would be temporary staffing arrangements and there is only one set of hours worked.
  2. One employer employs an employee for one set of hours in a workweek, and another employer employs the same employee for a separate set of hours in the same workweek.

DOL Scenario 1

In the first scenario, the final rule adopts a four-factor balancing test to determine whether the potential joint employer is directly or indirectly controlling the employee, assessing whether the potential joint employer:

  • hires or fires the employee
  • supervises and controls the employee’s work schedule or conditions of employment to a substantial degree
  • determines the employee’s rate and method of payment
  • maintains the employee’s employment records.

It should be noted, that the DOL advises that the particular facts of the case must be considered, and the factor’s weight will vary based on the circumstance. Additionally, proof that the potential joint employer is only responsible for maintaining the employee’s employment records does not show joint employment.

DOL Scenario 2

For the second scenario, the final rule did not make any substantive changes to the standard for determining joint employer liability. 

    • If the employers are acting independently of each other and are disassociated with respect to the employment of the employee, each employer may disregard all work performed by the employee for the other employer in determining its liability under the FLSA.
    • If the employers are sufficiently associated with respect to the employment of the employee, they are joint employers and must aggregate the hours worked for each for purposes of determining if they are in compliance.

The employers will generally be sufficiently associated if there is an arrangement between them to share the employee’s services, the employer is acting directly or indirectly in the interest of the other employer in relation to the employee, or they share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.

Exceptions

The rule also clarifies that the factors used to determine if an employee is an independent contractor, or is economically dependent on the employer, are not included in determining joint employer status.

Additionally, per the DOL guidance, the final rule also identifies certain other factors that do not make joint employer status more or less likely under the Act, including:

  • operating as a franchisor or entering into a brand and supply agreement, or using a similar business model
  • the potential joint employer’s contractual agreements with the employer requiring the employer to comply with its legal obligations or to meet certain standards to protect the health or safety of its employees or the public
  • the potential joint employer’s contractual agreements with the employer requiring quality control standards to ensure the consistent quality of the work product, brand, or business reputation
  • the potential joint employer’s practice of providing the employer with a sample employee handbook, or other forms, allowing the employer to operate a business on its premises (including “store within a store” arrangements), offering an association health plan or association retirement plan to the employer or participating in such a plan with the employer, jointly participating in an apprenticeship program with the employer, or any other similar business practice.

Next Steps

Employers should review their current scheduling practices, pay practices, and other potential relationships that may qualify them as a joint employer. Joint employer status may affect overtime compensation, benefits, and tax and legal liability as a joint employer. If you determine you are a joint employer under these two scenarios, it is a best practice to reach out to your tax and legal counsel for guidance on meeting your employment obligations.

An overview of the Joint Employer changes can be found on the DOL website and the full regulations can be found on the Federal Register.

 

Thank you for choosing Paylocity as your Payroll Tax and HCM partner.

This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.


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