Payroll Briefs

DOL Revokes 2020 Joint Employer Final Rule

August 18, 2021

The U.S. Department of Labor (DOL) has issued a new final rule revoking the joint employer final rule under the Fair Labor Standards Act (FLSA) set into effect on March 16, 2020. The new rule has an effective date of Sept. 28, 2021, and was proposed on March 12, 2021. DM Payroll Solutions sheds light on the DOL’s new rule to keep your business in the know if you share employees with another organization.

Joint Employment Background

Employees may have more than one employer for the work they perform under the FLSA. Joint employment for minimum wage and overtime requirements is applicable when the DOL considers two different companies to be a worker’s employer for the same work. For example, if an office building hires a cleaning crew through a staffing agency but the office dictates the cleaning crew’s work, both the staffing agency and the office are considered joint employers and are required to fulfill minimum wage and overtime requirements.

The original March 2020 rule contained a four-factor test to confirm joint employer status in vertical joint employment scenarios, as well as a less constricting evaluation to determine joint employer status in horizontal joint employment scenarios. The DOL stated there is not one specific factor settling an employer’s joint employer status, but that the other employer must exercise one or more of the four control factors (directly or indirectly) to be considered a joint employer under the FLSA. The March 2020 rule determined “control” as a significant determinant for joint employers and removed “economic dependence” as one of the factors.

A U.S. District Court rejected most of the March 2020 rule in September 2020, calling it “arbitrary and capricious” because:

  1. The DOL did not specify why it departed from previous interpretations of the rule,
  2. The rule conflicts with other regulations and
  3. The rule didn’t account for the cost to workers.

After receiving over 290 comments on the March 2021 notice of proposed rulemaking, the DOL made the decision to move forward with revoking the March 2020 rule.

Horizontal Joint Employment

Additionally, the DOL is revoking the March 2020 rule’s horizontal joint employment analysis, as it was intertwined with the vertical joint employment analysis. The final rule stated the focus of horizontal joint employment will continue to be the degree of association between joint employers. To demonstrate horizontal joint employment, the following is sufficient:

  1. Employers agree to share an employee’s services,
  2. One employer acts in the interest of the other employer (directly or indirectly) concerning the employee or
  3. Both employers share control of the employee (directly or indirectly), since one employer controls, is controlled by or is under common control with the other employer.

Navigating the Complexities of Joint Employment

If you are considered a joint employer, you may be familiar with the difficulties of navigating your shared employees’ payroll and employment information. Fortunately, DM Payroll Solutions has robust capabilities to streamline the reporting of shared employees, taking away this administrative burden from your HR team. For more information, contact us today.