The U.S. Department of Labor has issued a final rule on joint employers for purposes of the Fair Labor Standards Act (FLSA). Under this rule, which runs 164 pages, an employee can be considered to have more than one employer, each with responsibility to adhere to the FLSA with respect to paying at least minimum wage and adhering to overtime rules.
This rule has significant ramifications for franchisees, temporary employment agencies, contractors/subcontractors, and some other small business owners.
Here’s the rule and what it means to you.
Overview of the joint employer rule
When an employee works for one employer, simultaneously benefiting another, there may be a joint-employer situation. Under the final rule, joint-employer status exists according to a 4-factor test that looks at:
- The ability to hire or fire an employee
- The right to supervise and control the employee’s work schedule and other conditions of employment to a substantial degree
- The authority to determine the employee’s rate and method of pay
- The obligation to maintain employee records
No single factor is determinative; it’s a balancing act. But merely maintaining employee records alone does not demonstrate joint employer status. What's more, just having rights under the 4 factors isn’t enough; a joint employer must actually exercise a right to have it count.
The rule also takes into account other factors, such as contractual obligations, business models, and business practices. But the fact that the employee is economically dependent on the potential joint employer is not relevant for determining the potential joint employer’s liability.
Impact of the rule
If there is a joint employer situation, then each employer is jointly and severally liable for complying with the FLSA. It’s important to review the DOL’s final rule so you know whether you are in fact a joint employer with another business. Consider this situation: there’s a general contractor and a subcontractor, and an employee hired by the subcontractor. If the employee isn’t given any required overtime pay, both the general contractor and the subcontractor could be in violation of the FLSA if they are considered to be joint employers (it depends on the application of the factors to their situation).
You don’t have to be concerned about this rule merely because you have an employee with a second job. You and the employee’s other employer are not joint employers; each of you is separately subject to FLSA rules.
Joan Rivers said: “whoever signs your paycheck is your boss” --- she obviously didn’t read the joint employer rule.
This new rule, which replaces the old one that’s been on the books since 1958, becomes effective on March 16, 2020.
If you have concerns about the application of the final rule to your business, talk with an employment law attorney.