On January 12, 2020, the U.S. Department of Labor issued a final ruling on the joint-employer status under the Fair Labor Standards Act (FLSA). Under this act,—which has not been updated in more than 60 years—“an employee of a company may be found to be the “joint employee” of a second, independent company depending on the nature and extent of control over the employee’s work exerted by the second business.”
This ruling is populated by a four-factor balancing test for determining joint-employee status under the FLSA. To make this determination, the U.S. Department of Labor’s four-factor test takes into consideration whether a business:
- Hires and fires employees;
- Supervises and controls employees’ work schedules or conditions of employment to a substantial degree;
- Determines employees’ rate and method of payment; and
- Maintains employment records.
These factors may be weighted differently and according to each case under review, but they must all be determined; meaning no single factor can stand alone under determination.
The final rule further clarifies and establishes that:
- To be a joint employer under the FLSA, a second employer must implement one or more of the four control factors.
- Additional factors may be considered, but only if they are indicative of whether the potential joint employer exercises significant control over the terms and conditions of the employee’s work.
- The use of the franchise model does not mean that a franchisor is more likely to be the joint employer of its franchisee’s employees.
The final rule will go into effect 60 days after the Jan. 12 release date, which is March 16, 2020. To learn more, please contact your GBQ tax advisor.