Compliance updates, analysis, plus HR and payroll best practices from HR One
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Most employers feel confident they know exactly who their employees are. You hire them, pay them, and manage their work. But there are situations where that line isn’t as clear as it seems, and where the consequences can be significant.
When a joint employment relationship exists, multiple employers can be held responsible for the same employee. That means liability for wages, overtime, and other obligations can be shared. In some cases, hours worked across different employers may be combined, triggering overtime that might not otherwise have been considered. A wage claim, audit, or dispute brings the arrangement into focus, and suddenly more than one employer is pulled into the same issue.
At the same time, employers have not always had clear guidance on when this applies. Standards have varied across courts, leading to inconsistent interpretations. The U.S. Department of Labor is proposing a new rule to create a clearer, nationwide standard.
What the Proposed Rule Includes
The proposed rule uses a control-based test to determine when joint employment exists.
Specifically, it looks at whether a business:
No single factor is decisive, but the more control a business exercises, the more likely it is to be considered a joint employer.
At the same time, setting expectations, such as safety standards or contractual requirements, does not, by itself, create an employment relationship. The distinction is between defining the outcome and directing the work.
Where This Risk Appears
In practice, this issue tends to show up in two ways.
The first is through contractor and vendor relationships. A business may use a staffing agency, subcontractor, or on-site vendor, where the worker is employed by another company. However, if your team is directing the work, setting schedules, assigning tasks, or supervising day-to-day activity, that may fall under vertical joint employment.
The second is through multi-entity structures. Many organizations are structured under separate FEINs for divisions or locations, but function as a single business with shared employees and management. When employees move between entities or are managed as one workforce, this may be considered horizontal joint employment.
In both cases, the focus is on how the business operates, not just how it is structured.
How This Happens
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Real-World Example: Contractor Relationship |
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Real-World Example: Multi-Entity Structure |
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A company brings in workers through a staffing agency during a busy season. Over time, internal supervisors begin assigning work directly, adjusting schedules, and approving overtime. When a wage and hour complaint later arises, investigators may look beyond who issued the paycheck and examine who was actually directing the work. |
A business operates multiple entities with separate FEINs, but employees regularly move between them and report to the same management team. During an audit, regulators may determine the entities function as a single integrated workforce, requiring hours worked across entities to be combined for overtime purposes. |
What This Means in Practice
For contractor and vendor relationships, the risk is in day-to-day management. Assigning tasks, setting schedules, or supervising work can shift the relationship toward employment, regardless of what the contract says.
For multi-entity structures, the issue is integration. If employees move between entities, report to the same managers, or operate under shared systems, those entities may be treated as joint employers. One common implication is overtime, as hours worked across entities may need to be combined.
When This Risk Typically Surfaces
Joint employment issues most often come to light during a wage and hour investigation, audit, or employee complaint.
They usually begin with something straightforward, unpaid overtime, classification issues, or recordkeeping questions. As the situation is reviewed, attention expands beyond the direct employer to include any business that may have exercised control over the employee’s work, and that other entity may also be brought into the claim.
What Employers Should Do Now
This is a proposed rule, not a final one. It will go through a public comment process, may be revised, and would then need to be finalized before taking effect.
There is no guaranteed timeline, but proposals like this often signal where enforcement is heading.
For employers, the takeaway is not to wait. If you rely on contractors or operate across multiple entities, now is the time to examine how those relationships function. Employers should review who is directing work, how responsibilities are shared, and whether your structure aligns with day-to-day operations.
Making adjustments now, before a final rule or similar standard takes effect, can reduce risk and avoid more difficult changes later.
Bottom Line
This proposal does not introduce a new issue so much as clarify one that already exists. It shifts the focus to how your business actually operates, not just how it is structured.
HR One is actively helping employers assess these relationships and identify where adjustments may be needed. If you would like to take a closer look at your current setup, we are available to help.
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