Why Managing Compliance for Your Contractor Network is NOT Joint Employment

Industry Information | April 30, 2020

Working with a vendor network requires your organization to utilize strategies like managing compliance to reduce risk exposure.

Contracting is often considered the backbone of America’s economic success.

Engagement of contractors allows organizations to create better focus, increase efficiencies, lower costs, and expand product support and innovation while skilled individuals open their small businesses. Organizations then focus on core offerings while allowing others to provide important, and often demanded, support services for those core offerings.

Even with the known benefits of the contracting arrangement, one of the main concerns has always been the possible existence of a co-employment, or joint employment, relationship. Joint employment is the sharing of control and supervision of an employee’s activity among two or more business entities. The implications of a joint employer classification increase the risk and liability for both parties, which is a topic that has always been a little unclear, at best. Getting this wrong could be costly, creating situations where an organization may be obligated for tax, wage, and other benefit requirements.

In early 2020 the definition and test for determining joint employment came into focus when the US Department of Labor – Wage and Hour Division – updated its regulations for the first time in almost 60 years. Under the Fair Labor Standards Act (FLSA), there is now more helpful and definitive guidance on how to determine joint-employer status under the Act. This final rule became effective on March 16, 2020.

The new federal rule has narrowed the requirements for what is considered a joint employer and provides a better structure for our Customers to follow when setting up their contractor network. The specific scenario our Customers contemplate is when an individual performs work for their employer that simultaneously benefits another individual or entity. Under the new rule, and stated simply, if the organization is not part of the day-to-day decisions of their contractors, they are not considered a joint employer.

Organizations should use a four-factor test for determining whether liability exists and if they qualify as a joint employer.

These considerations include who:

• Hires and fires employees
• Supervises and controls work schedules or conditions of employment
• Determines rate and methods of payment including wages, benefits and hours of work
• Maintains employment records

A key differentiator in this final rule is the control over work conditions to determine whether it is a right, or perceived right, of control or actual control that is being exercised.

The strength of contractor relationships is important to the success of the overall contracting model but now does not carry the same concern it once did when supporting a contractor network, or setting compliance requirements, which would be construed as exercising control. This opens opportunities in the contractor relationship for help and guidance.

Some examples include the sharing of handbooks, providing training and guidance documents, participation in an apprenticeship program, investment in equipment, upholding brand agreements, quality control measures, or even requiring certain policies and health prevention programs to be in place.

As always, each case will have its specific facts to be considered however the need for significant control over the terms and conditions of the individual’s work needs to be evident for a joint employment relationship to exist.

Reviewing contract language and how the relationship between parties is structured can further reduce any liability for wage and hour issues. It is also important for each participant in the relationship to understand their role, restrictions that may be required, and how they work together to ensure compliance with the structure of the relationship.

PlusOne Solutions’ role in delivering Customer compliance programs has always been very clear that screening and requirements are for determining participation for contract purposes only. The actual employment decision for any individual always remains the decision of the service provider, agent, or contracting company. Our program does not direct a contractor to hire specific workers, as that would put us offside of the joint employer determination. PlusOne Solutions welcomes this new final rule and looks forward to the future for our Customers and their contractor networks to thrive under this new interpretation.

Contents are provided for information purposes only and should not be construed as legal advice. Users are reminded to seek legal counsel with respect to their obligations and use of PlusOne Solutions services.

About PlusOne Solutions

PlusOne Solutions has been an industry leader in the risk management field by specializing in compliance programs that meet the complex challenges of geographically dispersed contractors, vendors, and employee networks. PlusOne Solutions protects companies from possible financial, legal, and reputational risks associated with contractor and vendor relationships while creating safer work environments. To learn more, visit https://plusonesolutio.wpengine.com.