Professional employment organizations (PEOs) like QBS implement a co-employment business model where an established business may pass off its administrative responsibilities to a PEO so it may focus on revenue-generating tasks for growing the business. As defined by the Department of Labor, joint employment or co-employment is “when two or more organizations share the control and supervision of one or more employees.” (USDOL)
On January 12, 2020, the DOL established a four-factor balancing test to distinguish a joint employer status under the Fair Labor Standards Act. The final rule will become effective March 16, 2020.
Here is the breakdown of the new four-factor test:
- Hires or fires employee(s)
- Supervises and controls employee’s employment scheduled and/or conditions
- Determines rate and method of payment
- Maintains employment records
Additional factors may be considered in review of joint employer status. For example, the final rule clarifies that an employee’s economic reliance on an employer does not determine whether the employer is in fact a joint employer as defined by the FLSA (National Law Review). It also states that an employer’s brand, supply, or similar business model and contractual agreements or business practices influence joint employer status.
The DOL has authority to enforce compliance against one or all joint employers. Be sure to review the DOL Fact Sheet that provides in-depth explanations regarding FLSA, DOL, and other authoritative entities’ oversight of compliance on such joint employer status.
To avoid compliance violations, employers should:
- Thoroughly review the final rule
- Determine if in a joint employer relationship
- Identify and address and compliance issues
Some FAQs are answered below.
Question: Why was the Joint Employer Rule revised?
Answer: It has been 60+ years since it was last revised and as time has progressed, courts have established a wide array of tests to define joint employer status, which as a result has created confusion and augmented compliance and litigation expenses.
Question: Do all four factors need to be met to be defined as a joint employer by FLSA?
Answer: There is no straightforward answer as it is evaluated case-by-case. The final rule states that an employer’s maintenance of an employee’s employment records only will not solidify a joint employer status.
For more information, please review these FAQs.
If you are not sure if you are in compliance or would like to learn more about joint employer status, please reach out to QBS. As a PEO, we are thoroughly experienced and equipped to answer questions regarding joint employer relationships. Contact QBS today to determine if you are working within compliance.