New joint employer coverage regulation changes the way PEOs and their clients will be treated under the Family Medical Leave Act (FMLA). Prior to the new rules effective January 16, 2009, clients and administrative employers, such as Professional Employer Organizations (PEO), were considered joint employers for purposes of determining coverage under the federal leave law. This joint employer status required that employers use the aggregate employee number of their administrative employer (in this case, the PEO). Because Xenium has an aggregate employee number much higher than the threshold for FMLA coverage (minimum of 50 employees in the U.S.), our smaller PEO clients were also required to comply with the federal law and offer protected leave to eligible employees.
Whether or not the PEO has a joint employer relationship for FMLA with the client will first be subject to an “economic realities” test. In those circumstances where there is joint employer status, the client, rather than the PEO, will generally be deemed to be the primary employer.
Under Section 825.106 regarding Joint Employer Coverage:
A PEO does not enter into a joint employment relationship with the employees of its client companies when it merely performs such administrative functions such as payroll, benefits, regulatory paperwork, and updating employment policies. On the other hand, if in a particular fact situation, a PEO has the right to hire, fire, assign, or direct and control the client’s employees, or benefits from the work that the employees perform, such rights may lead to a determination that the PEO would be a joint employer with the client employer, depending upon all the facts and circumstances.
The interpretation of the new joint employer regulations is that Xenium PEO clients are no longer required to include employees not employed at their own worksites (such as the total number of employees co-employed by Xenium) for purposes of determining FMLA coverage. However, it is important to note that clients may still be covered under the state leave law (OFLA), which applies to employers with 25 employees in Oregon. BOLI has not yet adopted (and may not adopt) the new FMLA regulations regarding joint employers.
We will continue to keep our clients updated on any state and federal legislative developments. PEO clients with questions about how the new rules impact their business operations may consult with their Xenium Human Resource Account Manager.
Source: NAPEO E Source, Volume 8, Issue 43, November 25, 2008
Full text of regulation changes:
Sec. 825.106 Joint employer coverage.
(a) Where two or more businesses exercise some control over the work or working conditions of the employee, the businesses may be joint employers under FMLA. Joint employers may be separate and distinct entities with separate owners, managers, and facilities. Where the employee performs work which simultaneously benefits two or more employers, or works for two or more employers at different times during the workweek, a joint employment relationship generally will be considered to exist in situations such as:
(1) Where there is an arrangement between employers to share an employee’s services or to interchange employees;
(2) Where one employer acts directly or indirectly in the interest of the other employer in relation to the employee; or,
(3) Where the employers are not completely disassociated with respect to the employee’s employment and may be deemed to share control of the employee, directly or indirectly, because one employer controls, is controlled by, or is under common control with the other employer.
(b)(1) A determination of whether or not a joint employment relationship exists is not determined by the application of any single criterion, but rather the entire relationship is to be viewed in its totality. For example, joint employment will ordinarily be found to exist when a temporary placement agency supplies employees to a second employer.
(2) A type of company that is often called a “Professional Employer Organization” (PEO) contracts with client employers to perform administrative functions such as payroll, benefits, regulatory paperwork, and updating employment policies. The determination of whether a PEO is a joint employer also turns on the economic realities of the situation and must be based upon all the facts and circumstances. A PEO does not enter into a joint employment relationship with the employees of its client companies when it merely performs such administrative functions. On the other hand, if in a particular fact situation, a PEO has the right to hire, fire, assign, or direct and control the client’s employees, or benefits from the work that the employees perform, such rights may lead to a determination that the PEO would be a joint employer with the client employer, depending upon all the facts and circumstances.
(c) In joint employment relationships, only the primary employer is responsible for giving required notices to its employees, providing FMLA leave, and maintenance of health benefits. Factors considered in determining which is the “primary” employer include authority/ responsibility to hire and fire, assign/place the employee, make payroll, and provide employment benefits. For employees of temporary placement agencies, for example, the placement agency most commonly would be the primary employer. Where a PEO is a joint employer, the client employer most commonly would be the primary employer.
(d) Employees jointly employed by two employers must be counted by both employers, whether or not maintained on one of the employer’s payroll, in determining employer coverage and employee eligibility. For example, an employer who jointly employs 15 workers from a temporary placement agency and 40 permanent workers is covered by FMLA. (A special rule applies to employees jointly employed who physically work at a facility of the secondary employer for a period of at least one year. See Sec. 825.111(a)(3).) An employee on leave who is working for a secondary employer is considered employed by the secondary employer, and must be counted for coverage and eligibility purposes, as long as the employer has a reasonable expectation that that employee will return to employment with that employer. In those cases in which a PEO is determined to be a joint employer of a client employer’s employees, the client employer would only be required to count employees of the PEO (or employees of other clients of the PEO) if the client employer jointly employed those employees.
(e) Job restoration is the primary responsibility of the primary employer. The secondary employer is responsible for accepting the employee returning from FMLA leave in place of the replacement employee if the secondary employer continues to utilize an employee from the temporary placement agency, and the agency chooses to place the employee with the secondary employer. A secondary employer is also responsible for compliance with the prohibited acts provisions with respect to its jointly employed employees, whether or not the secondary employer is covered by FMLA. See Sec. 825.220(a). The prohibited acts include prohibitions against interfering with an employee’s attempt to exercise rights under the Act, or discharging or discriminating against an employee for opposing a practice which is unlawful under FMLA. A covered secondary employer will be responsible for compliance with all the provisions of the FMLA with respect to its regular, permanent workforce.