Home Blog Department Of Labor Updates Joint Employer Rule. How does it Impact your Business?

Department Of Labor Updates Joint Employer Rule. How does it Impact your Business?

Posted January 22, 2020 - Vineesha Kakarlapudi

Are you hiring an employee whose work benefits another person along with yours, and worried about the joint employer rule? Department Of Labor (DOL) has made that easy for you.

DOL’s Final Rule Updates Joint Employer Regulation in 60 Years

Department of Labor is updating the regulations corresponding to Joint Employer status after almost 60 years. This final rule guides in promoting certainty for employers who benefit mutually from one employee’s work.
Before going further about the final rule, let’s first understand the term joint employer.

Who is a Joint Employer?

According to DOL, a Joint employer is “any person acting directly or indirectly in the interest of an employer in relation to an employee”. In simple terms, a Joint employer is the one who shares the control and supervision of an employee with another employer. These employees are hired by one company and perform work that mutually benefits another individual (employer). Joint employer can be an individual or an entity.

Existing Joint Employer Rule & its Demerits

In 1958, a law was published explaining that joint employer status depends on whether multiple persons are “not completely disassociated” or “acting entirely independent of each other” with respect to the employee’s employment.

This rule doesn’t guide employers in determining their joint employer status. And hence, the Joint Employer status remains a major concern for larger companies recruiting temporary staff through third party agencies.

Notice of Proposed Rulemaking

The joint employer rule was never modified since its formation in 1958. But, under Obama’s administration, DOL has adopted an expansive “economic realities” test to assess the status. However, Trump’s governance has withdrawn this test later.

In April 2019, the Department has published a Notice of Proposed Rulemaking (NPRM) detailing this concern. The new rule includes a four-factor balancing test for determining joint employer status when an employee performs work for his or her employer that simultaneously benefits another individual or entity. It also includes guidance regarding the application for the test.

“This final rule furthers President Trump’s successful, government-wide effort to address regulations that hinder the American economy and to promote economic growth,” said Secretary of Labor Eugene Scalia. “By giving greater clarity to businesses who want to work together, we promote an entrepreneurial culture that has driven American prosperity for decades.”

A Glimpse at the DOL’s Specifications in the Joint Employer Rule

The final rule proposed by the Department of Labor is effective from March 16th, 2020 and specifies that:

  • When an employee performs work for the employer that simultaneously benefits another person, that person will be considered as a joint employer, when that person is acting directly or indirectly in the interest of the employer in relation to the employee.
  • It also provides a four-factor balancing test to determine when a person is acting directly or indirectly in the interest of an employer in relation to the employee.
  • Clarifies that an employee’s “economic dependence” on a potential joint employer does not determine whether it is a joint employer or not.
  • Specifies that an employer’s franchisor, brand, and supply, or similar business model and certain contractual agreements or business practices do not make joint employer status under the FLSA more or less likely.

The Four-factor test for Determining Joint Employer

Now the question is, will you be a Joint employer if you are hiring an employee working for another employer? Not always. DOL will adopt a four-factor balancing test for assessing joint employer status. This test checks whether the potential joint employer:

  • Hires or fires the employee.
  • Supervises and controls the employee’s work schedule or conditions of employment.
  • Determines the employee’s rate and method of payment.
  • Maintains the employee’s employment records.

Impact of the Proposed Joint Employer Rule

The final rule guides employers in determining the joint employer status. It also helps in understanding their responsibilities in paying employee’s minimum wages. So, the corresponding employers have to at least pay the minimum wages to the employee, along with the overtime wages. That is when the employees work for more than 40 hours in a workweek.

Addressing the final rule, Wage and Hour Division Administrator said that, “The changes in this final rule break down barriers that keep companies from constructively overseeing, guiding and helping their business partners.” He further added that “For small business owners, and the employees working in those businesses, the relationship and the guidance coming from franchisers and other contracting companies can greatly improve the workplace and help them create jobs”.

What are your views on the final Joint Employer rule? Do let us know in the comments below.