In light of last week’s guidance from the Department of Labor regarding joint employment under the Fair Labor Standards Act, employers may want to conduct a workforce audit to determine how they are currently using contract labor, legal experts say.

Administrator’s Interpretation No. 2016-1, issued by the DOL’s Wage and Hour Division Administrator David Weil, outlines common scenarios in which two or more employers jointly employ an employee and are thus jointly liable for compliance with the FLSA and the Migrant and Seasonal Agricultural Worker Protection Act.

“The Department of Labor is going to aggressively investigate whether or not your company is liable for wages and hours even if you get your worker through a vendor, even if you get your worker through a staffing agency or a leasing company, or some other third party, or if you pay the contractor directly on a 1099 basis, assume that the government is going to investigate that,” says Allan Bloom, co-head of Proskauer’s wage and hour practice group and a partner in the firm’s labor and employment practice. “If it finds what it determines to be indicators of an employment relationship, it will hold you liable 100% for minimum wage and for overtime.”

Also see:DOL guidance helps define line between employee, contractor.”

Bloom recommends employers conduct an audit of how they do business with contractors and other non-employees, asking questions such as:

  • How do we use contractors?
  • Who are we paying on a 1099 basis?
  • Who is in our building? Who has access to our premises and systems who is not being paid on a W-2 basis by the company itself?
  • Are these workers economically dependent on us, or do they work for other people as well?
  • Are these workers truly in business for themselves, or are they really just working for us?
  • Do we control these workers and how they do their jobs, or do they really have specialized skills and control themselves?
  • Is what they’re doing integral to our business, or not?

“I think it’s yet another wake up call for any company that relies heavily on contracted labor, regardless of the source of that contracted labor,” says Bloom. “If you're not paying someone on a W-2 basis, if they are performing services for you, you should be reading this guidance carefully to assess what your risk is of being determined to be a joint employer of those workers.”
Also see:Employers face crackdown over worker misclassification.”

And while the most recent guidance limits itself to joint employment under the FLSA and the MSAWPA, Bloom cautions the Obama administration’s broad interpretation of joint employment could have implications for other pieces of legislation.

“If the Department of Labor comes in and determines that you are a joint employer of a group of workers that you've never treated as employees, that finding may have implications as far as any other aspects of the employment relationship,” he says. “If you're vulnerable as a joint employer under the Fair Labor Standards Act, are you vulnerable under ERISA? Are you vulnerable under your health and welfare plans? Are you vulnerable under the Affordable Care Act, [which] is a huge issue, because the Affordable Care Act has requirements for coverage.”

Last summer the DOL issued guidance on how businesses should distinguish between employees and independent contractors, noting misclassification of workers has been on the rise. That guidance, coupled with the newly released Administrator’s Interpretation, signal “an effort by the Department [of Labor] to read the definition of ‘employee’ very expansively,” says Alexander Passantino, a partner in the Washington, D.C. office of law firm of Seyfarth Shaw.

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