The U.S. Department of Labor (DOL) released a proposed rule that would clarify how joint employer status is determined under the Fair Labor Standards Act (FLSA). The proposal also extends to the Family and Medical Leave Act (FMLA), meaning its impact reaches beyond wage and hour compliance.
When a joint employment relationship exists, each employer becomes jointly and individually liable for wages, overtime, damages and other relief owed to an employee. In other words, if two entities are considered joint employers, both are responsible for ensuring accurate pay and compliance, regardless of who handles payroll or day‑to‑day supervision. The proposed rule largely aligns with elements of the DOL’s 2020 rule but adds clarity around two categories of joint employment: vertical and horizontal.
Vertical Joint Employment
Vertical joint employment typically arises when an employee works for one employer, but another business also benefits from that work. This is common in staffing arrangements, subcontracting and franchise relationships. The DOL’s proposed rule outlines four factors to determine whether vertical joint employment exists. An employer may be considered a joint employer if it:
- Hires or has the authority to terminate the employee.
- Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree.
- Determines the employee’s rate and method of pay.
- Maintains the employee’s employment records.
Employers don’t need to meet all four factors to be considered joint employers, rather, the totality of the relationship is evaluated.
Horizontal Joint Employment
Horizontal joint employment occurs when two or more employers are sufficiently connected in how they employ an individual. This can happen when:
- Two related businesses share employees.
- Employees work shifts for separate but commonly owned entities.
- Management, operations or scheduling overlap across multiple locations.
The proposed rule largely readopts the DOL’s 2020 language on horizontal joint employment, reinforcing that relatedness between employers, not just shared employees, drives the determination.
Impact on Payroll Systems
Joint employment status affects how employers must track hours, calculate overtime and maintain records. If an employee is jointly employed:
- All hours worked across joint employers must be combined for overtime calculations.
- Both employers are liable for wage and hour compliance.
- Accurate recordkeeping becomes critical, especially when multiple systems or entities are involved.
The proposed rule highlights the importance of having centralized time‑tracking tools, clear and consistent employee classification practices, integrated payroll and HR systems. Working with a payroll provider that can holistically look at both employer systems can ensure you have the correct connections to ensure compliance.
Next Steps
Keep in mind, this is a proposed rule and not a final one. As the DOL moves to finalize this rule, staying proactive can help employers ease the transition in the future. A few items to evaluate include:
- Whether any current staffing, subcontracting, or shared‑employee arrangements could create joint employment
- How employee data flows between entities
- Whether payroll systems can consolidate hours across locations or business units
- Recordkeeping practices that demonstrate compliance
At DM Payroll Solutions, we partner with leading software providers to offer a customizable, single-entry workforce management solution, seamlessly and securely integrating payroll with accounting, applicant tracking and more. Our workforce management solutions help you stay connected with tools for time tracking, employee self-service, documentation and compliance, all in one platform. Contact us to learn more.
