The U.S. Department of Labor’s Wage and Hour Division recently released a proposed joint employer rule that could significantly impact the PEO industry. The proposal outlines a four-factor test used to determine when two businesses may be considered joint employers under the FLSA, FMLA, and MSPA. No single factor is determinative — instead, the analysis looks at whether a business:
- Has authority to hire or fire employees
- Supervises or controls work schedules or employment conditions
- Determines employee pay rates or methods of payment
- Maintains employment records
For many PEOs, the proposal may be viewed as a positive development because it places greater emphasis on actual control rather than simply reserved contractual authority. In practice, customers — not the PEO — generally make the key employment decisions. However, service agreements, operational practices, websites, and marketing materials should all clearly reflect those distinctions to avoid creating unintended liability exposure.
The proposal also recognizes that common PEO services — such as providing compliance guidance, sample handbooks, HR support, and workplace policies — do not automatically create joint employer status. Still, businesses operating in states like California should continue monitoring state-specific standards, which may apply broader joint employer tests than federal law.
If your business or PEO needs guidance reviewing service agreements, HR practices, or compliance strategies related to joint employer liability, contact MNK law at info@mnklawyers.com to learn how we can help protect your business and reduce legal risk.