As small businesses grow into larger businesses, it is essential for these entities to understand their growing responsibilities to their employees. As a company hits certain hiring thresholds, certain federal laws are implicated. One such law is the Family Medical Leave Act (“FMLA”). This blog is the first in a series that cover the basics of FMLA. Prudent (and even not prudent) HR folks know that FMLA is triggered when an employer has 50 employees.
The statute defines a Covered Employer as:
[A]ny person engaged in commerce or in any industry or activity affecting commerce who employs 50 or more employees for each working day during each of 20 or more calendar workweeks in the current or preceding calendar year.
What is “engaged in commerce?”
The federal regulations make it super easy to decipher which employers are “engaged in commerce.” For the purposes of FMLA, employers who meet the 50 employee threshold are deemed to be “engaged in commerce.”
After that “hurdle” is jumped, the next step is to accurately count to 50.
Who Counts Towards the 50?
When counting employees, businesses must count every individual who:
- Is on the payroll;
- On paid leave*;
- On unpaid leave*;
- On Disciplinary Leave*;
*Individuals who are on leave are counted so long as there is a reasonable expectation that the employee will return to active employment.
What Constitutes an Employer?
In the FMLA arena, there are situations where it is unclear as to who is actually counted. As companies merge and/or acquire or utilize PEO companies for staffing, the count to 50 becomes less clear.
The Joint Employer scenario pops up when (1) a company hires a PEO company for staffing, (2) there is an arrangement between employers to share employee services/interchange employees, or (3) one employer acts directly or indirectly in the interest of the other.
For the purposes of FMLA, employers are designated at separate employers unless it meets the JOINT EMPLOYER TEST or the INTEGRATED EMPLOYER TEST.
INTEGRATED EMPLOYER TEST
When looking at the Integrated Employer Test, the following factors are considered: (1) Common Management, (2) Interrelation between operations, (3) centralized control of labor relations, (3) degree of common ownership; and (4) degree of common financial control.
JOINT EMPLOYER TEST
A Joint Employer arises when two or more businesses exercise the same control over the work and conditions of the employee. The regulations outline two general scenarios when a Joint Employer is found: (1) when an employee performs work that simultaneously benefits two or more employers, or (2) when an employee works for two or more employers at different times during the workweek.
So What if it is Determined that the Entities are Joint Employers? Who has to provide the FMLA Leave?
The Primary Employer is responsible for providing FMLA leave. When two entities are deemed to be joint employers, only the primary employer is responsible for (1) giving the required notice, (2) providing FMLA leave, and (3) maintenance of health benefits.
So how do we determine who is the Primary Employer? As with most things, it is a balancing of factors. The following factors are considered when determining whether an entity is a primary employer:
- Which entity has the authority/responsibility to hire and fire;
- Which entity has the authority/responsibility to assign and place the employee;
- Which entity has the authority/responsibility to make payroll;
- Which entity has the authority to provide employment benefits?
So What if there is a Joint Employer? How are the Employees Counted?
When it is determined that a Joint Employer exists, employees jointly employed by two employers must be counted by both employers. It does NOT matter if the individuals are included on the payroll.
So What if I Hire Employees Through a Temp Agency?
The regulations address this specific scenario. First, the Joint Employer status is determined after looking at the totality of the circumstances. No one factor is dispositive of the status. Now, the status of Joint Employer really turns on what the regulations refer to as “economic realities.”
Usually, companies hire Professional Employer Services (PEO’s) to perform Administrative Functions. The regulations provide examples of Administrative Functions:
- regulatory paperwork
- update employment policies
The regs are clear: A PEO is NOT a joint employer just because it performs an administrative function. BUT…a PEO could be deemed a Joint Employer with the Client Employer if the PEO has the right to hire, fire, assign, or direct and control the client’s employees, or if the PEO benefits from the work that the Client Employer’s employees perform.
The regulations actually state that in most cases, the Temporary Agency is usually the primary employer.
Let’s look at two examples…
FIRST EXAMPLE: Client Employer with 45 employees hires a Temp Payroll Agency. The Temp Payroll Agency has seven employees. The Temp Payroll Agency simply processes payroll, and they do not have the authority to hire, fire, assign or direct work. The Temp Payroll Agency Employees are paid by the Payroll company and not through the Client Employer.
Combined, the Client Employer and the Temp Payroll Agency have 52 employees.
Since the Temp Payroll Agency is purely administrative, the Client Employer and the Temp Payroll Agency are not a Joint Employer for the purposes of FMLA. It follows that the Client Employer is not a covered employer under the FMLA and does not have to provide FMLA leave.
NOW….let’s take it a step further. What if the Temp Payroll Agency has 100 employees total? This Temp Payroll Agency provides payroll services to multiple companies. Does this Temp Agency have to provide FMLA leave for their employees? The answer is YES! Here’s why:
- The Temp Agency is the Primary Employer as it (1) places the employees, (2) pays the employees, (3) hires the employees (and can fire them), and (3) provides employment benefits.
NOTE: The regulations exclude employees who work at a site with less than 50 people if the total number of employees employed by the employer within the 75 miles of that worksite is less than 50. So, if the Temp Agency has seven people at a site, and there are less than 50 people working at sites within a 75-mile radius of these seven people, then they are not eligible for FMLA. Employers should consult with counsel when faced with this situation.
SECOND EXAMPLE: Client Employer with 48 employees hires a consulting PEO to manage the HR Department. The PEO has three employees. The PEO oversees the entire HR department. They can hire members of the HR team and fire those who are not performing. The PEO runs the HR department and directs and controls the client’s employees within the department. The PEO individuals are paid through the PEO, yet they have management authority.
Is this a Joint Employer? The answer is YES. This PEO oversees the client employers’ employees and can hire, fire, assign and direct them.
OK…so now that it is established that they are a joint employer…now what? How do we know which entity is in charge of providing the FMLA leave? We must now consider the Primary Employer Factors. (See above). The regulations specify that when a PEO is deemed a joint employer with the Client Employer, the Client employer is usually the Primary Employer (aka- provides the FMLA).
This is the first in a series of blogs on FMLA. Employers should not hesitate to reach out to counsel to clarify any issues as they relate to FMLA Coverage.
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