What Are Joint Employers and Special Employers?

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Businesses that employ workers must comply with various federal and state laws. For instance, they must pay the minimum wage required by the Fair Labor Standards Act (FLSA). In most states, employers must purchase a workers compensation policy to ensure that employees injured on the job receive the benefits afforded to them by law.

Most workers have one employer. They perform work for the same business that hired them.

However, some employees are shared by multiple businesses. They are hired by one company and perform work for another. When two or more businesses share workers, disagreements can occur over which company is responsible for complying with federal or state employment laws.

Federal Employment Laws

Most federal employment laws are administered and enforced by the Department of Labor (DOL). Laws that have to do with wages and labor issues, like the FLSA and the Family Medical Leave Act, are overseen by the DOL's Wage and Hour Division.

A worker who is shared by multiple employers is entitled to the same rights and protections under federal employment laws as any other worker in the U.S. To protect workers' rights, the DOL has created some rules regarding joint employment. When joint employment exists, all of the employers are responsible, jointly and individually, for complying with the laws. Joint employment can be vertical or horizontal.

  • Vertical. In vertical joint employment, one employer provides workers to another, and the worker is economically dependent on both. An example is a worker employed by a staffing agency and assigned to work at a manufacturing plant.
  • Horizontal. In horizontal joint employment, the employee has two or more employers that are separate companies but have a relationship or affiliation with each other. Typically, the employee performs work for each company. For example, Jim and Bob are brothers and each owns a restaurant. Whether workers are hired by Jim or Bob, they typically work at both restaurants.

    Co-Employment Under Workers Compensation

    The concept of joint employment may apply to workers compensation insurance. In many states, a business is considered a joint employer when it leases workers from a professional employer organization (PEO). A PEO is an independent company that provides various employment, administrative, and professional services to its clients (employers) under a contract. Depending on the terms of the contract, a PEO may handle hiring, payroll, taxes, and benefits while the client supervises the employees' work. The PEO and client are considered co-employers of the leased employees. The two companies share employment-related risks and responsibilities.

    In some states, the law dictates whether the PEO or the client must purchase workers compensation coverage on behalf of the leased workers. In other states, the PEO and client may make this decision themselves.

    State law may also specify how workers compensation insurance must be arranged. Some states require the client to insure the workers under a policy written in its name. Other states allow the PEO to insure the workers under a master policy that covers the PEO's direct workers as well as all workers leased to its client companies.

    Still other states require a "coordinated" program. Under this type of program, the leased workers are insured under a policy written in the name of the client company, and the policy is linked to the PEO via an endorsement.

    Special Employment

    Another concept related to worker sharing is special employment. Special employment is based on a common law doctrine called the borrowed servant rule. This rule applies to workers compensation. A "borrowed servant" is a worker who has been hired by one employer, called the general employer, and loaned to another. The borrowing employer is called the special employer. If the worker is injured on the job, the special employer is responsible for providing workers compensation benefits.

    Many states have laws that describe the circumstances that must exist for a borrowing employer to qualify as a special employer.

    The laws vary by state. Generally speaking, however, a borrowing employer is considered a special employer if all of the following has occurred:

    • The direct employer has agreed to loan a worker to another firm, and the employee has consented to the arrangement.
    • The worker is doing the type of work normally performing by the borrowing employer. For instance, a restaurant borrows a worker to help with food preparation.
    • The borrowing employer controls the details of the work (how the work is done).

    Temporary Workers

    A special employment relationship generally exists when a temporary staffing agency has provided a worker to a business The client). Typically, the staffing agency and the client sign a contract that specifies the term of the employee's assignment and the type of work he or she will do. The staffing agency usually remains the worker's general employer so it is responsible for purchasing workers compensation insurance. To protect itself against lawsuits by injured temporary workers, the client should be listed as an alternate employer under the staffing agency's workers compensation policy.

    Contractors

    In some cases, a contractor may be considered the special employer of a subcontractor's employee. This can occur if say, a contractor rents a crane or other piece equipment and the equipment owner provides an operator.

    For example, suppose that Busy Builders is constructing an office building. Busy rents a crane from Easy Equipment for the purpose of lifting air conditioning equipment onto the building's roof. Easy Equipment provides a worker named Ed to operate the crane. Ed is injured at Busy Builder's work site and seeks workers compensation benefits from Busy. Ed claims that Busy is a special employer so it has a duty to provide the benefits. To obtain benefits from Busy Builders, Ed will have to prove that the contractor meets the requirements of a special employer under his state's law. 

    Other Borrowed Workers

    A worker hired by one company to work exclusively for another might be considered the special employee of the employer to which he or she was assigned. For example, Amy was hired by A-1 Accounting Services to manage the accounts of an A-1 client, Marvelous Manufacturing. Marvelous needs a full-time accountant, and Beth has fulfilled this role since she was hired by A-1. She works exclusively for Marvelous in an office located on the manufacturer's premises. If Amy is injured on the job and seeks workers compensation benefits from Marvelous, Marvelous might be obligated to provide them.