DOL redefines meaning of joint employer.

In early January the Department of Labor revised regulations that interpret joint employment under the Fair Labor Standards Act (FLSA). This follows on the heals of the “Final Rule” that went into effect January 1st that increases the threshold for exempt status. The Final Rule applies only to obligations to pay minimum wage and overtime and does not apply to other aspects of joint employment as determined by other legislation.

The Final Rule establishes tighter boundaries in the definition, making findings of joint employment more difficult and reducing minimum wage and overtime liabilities for employers. This is the first significant clarification since 1958.

Joint employment refers to situations in which an employee performs work for his or her employer that simultaneously benefits another entity or individual. The new guidance introduces a four-factor balancing test to assess whether joint employment exists. In each case, the combination of results to the four factors determines the existence of joint employment. They consider whether the potential joint employer:

  • Hires or fires the worker
  • Substantially supervises the workers schedule and conditions of employment
  • Determines the worker’s rate and method of payment
  • Maintains the workers employment records

In assessing joint employment, the FLSA seeks evidence that the company not only has the right to exercise control, but actually does so. However, interpretation is not necessarily clear or straightforward. Under this guidance, when sourcing contingent labor, clauses in a contract stating that the staffing agency’s customer has the right to request the removal of a worker does not qualify as joint employment. However, if the customer sets the worker’s pay rate or weekly work schedule that can be considered as evidence of joint employment. “indirect control”, in which the customer issues mandatory policies to the staffing agency about employment policies and practices other than those regarding quality control or legal or safety requirements, can also be deemed as a joint employment practice. The guidance states that a customer can specify the time and place of performance of work but altering these requirements can incur joint employment liability.

Despite the revised regulations, the interpretation of conditions indicating joint employment is situational and remains somewhat unclear. When engaging staffing agencies to provide temporary workers, carefully review policies and procedures.

nextSource can provide additional guidance on the most effective approaches to avoid liabilities associated with joint employment. Contact us for more information.

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