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DOL adopts new joint employer determination test

Published on March 2nd, 2020 by Triton Benefits & HR Solutions

The U.S. Department of Labor (DOL) recently announced a new rule that will update the process of determining whether a business is considered a joint employer, effective March 16, 2020

DOL officials have created a new test, which can be used to give or take away joint employment status to organizations. This more comprehensive determination process will help the DOL protect workers from violations against the Fair Labor Standards Act (FLSA).

What is joint employment?

Joint employment, also referred to as co-employment, refers to situations where two or more organizations employ the same worker.

Let's say you own a shipping company that frequently hires part-time forklift drivers, which are provided to you by a staffing agency. In this scenario, the staffing agency is known as a direct employer, and your shipping company is the secondary business (or potential joint employer). If the agency hires the workers, issues their paychecks and provides them with tax documents, but your company supervises them and creates their schedules, who do the forklift drivers truly work for in the eyes of the government?    

The new standards set by the DOL will help resolve issues where it's unclear whether or not the secondary business is considered a joint employer.

Why is this important?

In certain situations, secondary businesses will avoid being labeled as joint employers, giving them the freedom to dodge FLSA regulations. Effectively identifying organizations as joint employers is a necessary part of protecting the rights of employees. Otherwise, secondary businesses can use direct employers as "shields" in order to assume less responsibility over their workers.

Returning to our example, let's say you have a super busy month at the factory, causing your temporary forklift drivers to work overtime. At the end of the month, these workers realize that their paychecks don't include the extra wages that they deserve for working those added hours, so they go to the staffing agency and demand more money (since they are the organization that issues payment). The staffing agency refuses, claiming that they don't pay for off-the-clock wages.

Now, your company is in a legal battle with the workers, who are expecting you to make up for their missed wages. Clearly, the workers deserve to be paid fairly, but which entity is responsible for making that happen? This is why the DOL's new test for determining joint employer status is so important.

What is the new test?

If the secondary business satisfies at least one of these four points, they can be classified as a joint employer:

  • Has the power to hire or fire workers.
  • Manages workers schedules and the conditions of jobs.
  • Decides how much workers get paid and the type of payment methods used.
  • Maintains records of employment.

The DOL will use this criteria in all cases where workers are being denied rights protected under the FLSA.

Going back to our hypothetical, since your shipping company managed and supervised those forklift drivers, the DOL would most likely determine that your shipping company is indeed a joint employer, making you responsible for paying the workers their fair wage. 

What does this mean for employers?

It's important to fully understand the details of this new rule as an employer. Examine your business' practices with the DOL's four-factor test in mind, and figure out whether you're currently part of a joint employment situation. If you are, make sure that you and the other entities involved are protecting workers by complying with FLSA regulations. 

Interested in learning more about how this new rule could affect your business? Connect with us at Triton today!

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