October 14, 2016

image of young asian female employee wearing headset and looking ambiguous to illustrate joint employment - whose employee is she?

“She’s Not My Employee…Right?”
Why Joint Employment is One Big Problem

Recently, the Department of Labor’s Wage and Hour Division (WHD) updated the Fair Labor Standards Act (FLSA) with expanded guidance on joint employment. These new rules could have major impacts on your liability and bottom line! While you may not consider someone your employee, the WHD and IRS may beg to differ. Here’s what you need to know to avoid a costly audit, or even a lawsuit.

What is Joint Employment?

There are two main types of joint employment: horizontal and vertical. Horizontal joint employment applies when an individual has multiple employers. One good example is when an individual splits time between two dental practices with separate corporate identities. Vertical joint employment, on the other hand, focuses on the “economic realities” of employment through one entity in service to another. An easy example of vertical joint employment is when an individual works with your practice through a temp agency or a staffing agency.

Now that you know what joint employment is, you need to know why you should care. The answer is simple: joint employment drastically increases liability and compliance problems.

Horizontal Joint Employment – Splitting Time Can Cause a Splitting Headache

Horizontal joint employment creates a host of compliance problems. Here are just a few examples. Imagine you are a doctor who owns multiple practices under different corporate identities. Let’s call two of your businesses Happy Teeth and All Smiles Dental. Now, imagine you have an employee who works part time for both practices. This employee keeps track of all hours worked, and you pay for their time. End of story, right? Wrong!

Here are some common issues that may arise if your employee splits their time between practices:

  • Overtime. Under the FLSA, an employee is either exempt or non-exempt. Most employees are non-exempt, which means they are subject to overtime if they work over 40 hours in one workweek. (Requirements in some states are even more strict.) If your employee works 25 hours for Happy Teeth and 25 hours for All Smiles, you had better be prepared to pay 10 hours of overtime for the week!
  • Travel time. If you have the employee commute from Happy Teeth to All Smiles during the workday, you likely need to pay for their travel time.
  • Benefits eligibility. Because the hours worked for one entity bleed into those worked for your other entity, the employee may be entitled to full time benefits despite their part time hours at each location.
  • Workers’ Comp complexity. Finally, if the employee gets injured on the job, you may be facing two separate Workers Compensation claims.
  • “Sharing is caring” may be the common phrase, but having an individual work for multiple entities you own can be a BIG problem! Still, this type of joint employment is easier to spot, and address, than vertical joint employment.

    Vertical Joint Employment – Why Temporary Staffing Can be an Ongoing Problem

    Unlike horizontal joint employment, with vertical joint employment individuals typically work only for you, without splitting their time. Perhaps you had an employee call out sick for the day, depart for maternity leave, or fill a vacant position following a resignation. Using a staffing or temporary agency is an easy and risk-free solution for filling that gap, right? Not so fast. The more you control the temporary employee, especially when it comes to their duties, wages, benefits and/or discipline, the more likely you will be considered their employer.

    One danger of vertical joint employment, especially through a temporary or staffing agency, is that you can wind up equally on the hook for the other company’s improper employment practices. For example, imagine that you obtain an employee through a temporary agency. You later find out that the agency has been cooking the books by failing to properly pay overtime. Those penalties may be leveled against you as well as the temporary agency! Alternatively, imagine an individual is sick and asks the temporary agency for a paid sick day that they are required by law (in some states) to provide. Instead of providing the benefit, the agency fires the person and provides you with a brand new temp. You could be on the hook for a wrongful termination claim, even though you didn’t fire anyone!

    Another danger of vertical joint employment is believing that your actions are protected because the agency stands between you and the temporary employee. That is not the case, and missteps by you or your managerial team members could lead to serious liability. Imagine your team leader told an agency not to send a particular temp back because she did not want to accommodate that temp’s disability. Think you are off the hook because someone else is providing the W-2? Think again!

    Alternatively, if your office manager tells a temporary employee not to come back because he overheard that person discussing their wages or unsafe working conditions, you’ve just been set up for a National Labor Relations Act (NLRA) violation or a discrimination lawsuit—just as if the temp was your employee all along. (And your office manager should not be interfering with legally-protected employee rights, in either case.)

    A Safer, Better Way Forward

    If you have a preexisting joint employment situation that you’d like guidance on, our HR Advisors would be happy to help. We’ll solve one issue in your practice for free! Just give us a call at 866-414-6056, or email info@cedrsolutions.com.

    CEDR Solutions can also work with you on your Employee Handbook and PCC policy to allow you as much freedom to manage your office as possible, while lowering your risks as an employer. We would be happy to talk with you further about the types of policies you need to stay safe. And if you have a current handbook you think passes muster, or you’d like to know what updates you might need, you can have a CEDR attorney review it for you at no charge. Again, to get started, all you have to do is get in touch.

    Thank you for learning with us. Have a productive and harmonious day!

    Friendly Disclaimer: This information is general in nature, and is not intended to replace good counsel about a specific issue with either your attorney or your favorite HR expert.

Friendly Disclaimer: This information is general in nature and is not intended to provide legal advice or replace individual guidance about a specific issue with an attorney or HR expert. The information on this page is general human resources guidance that is believed to be current as of the date of publication. Note that CEDR is not a law firm, and as the law is always changing, you should consult with a qualified attorney or HR expert who is familiar with all of the facts of your situation before making a decision about any human resources or employment law matter.