by Robert W. Ditmer, CPP*
Joe, Gordon
and Betty all have one thing in common. They work for two employers,
and they work more than 40 hours each week. So are they entitled
to overtime pay? Well, that depends on their circumstances.
Joe works
full-time (40 hours a week) for the maintenance department
of a downtown office complex. He also works 2 hours a night,
5 days a week, as a janitor in a day-care center.
Gordon operates
a road grader and is currently working on a road improvement
project that stretches from southern Pennsylvania into
northern Maryland. When he works in Pennsylvania he is employed
by the
Pennsylvania Department of Transportation, and when he
works on the Maryland section of the road, he is paid by the
Maryland
Department of Highways. He is working an average of 56
hours per week.
Betty works 4 hours
a day, 5 days a week, as an administrative assistant for a pharmaceutical
corporation. She also works for the marketing subsidiary of the same company
doing telephone research. She works approximately 30 hours a week for
the second company over a 6-day period.
Although all three
of these employees have multiple employers, their situations are different,
and what they are entitled to is different. In this article we will examine
three scenarios where employees work for multiple employers so that employers
can determine if and when employees must be paid overtime.
Multiple Unrelated
Employers
First of all, Joe is
not entitled to any overtime pay. The Code of Federal Regulations (CFR)
clearly states the following: “If all the relevant facts establish
that two or more employers are acting entirely independently of each other
and are completely disassociated with respect to the employment of a particular
employee, who during the same workweek performs work for more than one
employer, each employer may disregard all work performed by the employee
for the other employer (or employers) in determining his own responsibilities
under the [Fair Labor Standards] Act.” [29 CFR 791.2(a)]
This is the most common
scenario among workers today. Earlier in the above-cited paragraph
the CFR even states “there is nothing in the act which prevents an individual
employed by one employer from also entering into an employment relationship
with another employer.” So in the majority of cases each employer
must pay a non-exempt employee overtime only if the employee works
more than 40 hours during a workweek for that employer.
Joint Employment
Gordon’s situation
is different, however. The CFR further states: “On the other hand,
if the facts establish that the employee is employed jointly by two or
more employers, i.e., that employment by one employer is not completely
disassociated from employment by the other employer(s), all of the employee’s
work for all of the joint employers during the workweek is considered
as one employment for purposes of the Act. In this event, all joint employers
are responsible, both individually and jointly, for compliance with all
of the applicable provisions of the act, including the overtime provisions,
with respect to the entire employment for the particular workweek.” [29
CFR 791.2(a)] The fact that employees who are employed jointly by two
or more employers are entitled to overtime has been established both
by the courts [Walling v. Friend, et al.,156 F. 2d 429 (C.A.8)] as
well as
by amendment to the Act.
Paragraph (b) of Section
791.2 provides the following three criteria to determine if a joint employment
relationship exists:
- The employers share the services of the employee; or
- One employer acts directly or indirectly in the interest of the other employer in relation
to the employee; or
- The employers share control of the employee because one employer controls, or is
controlled by, the other employer, or all of the employee’s
employers are controlled by another company.
In Gordon’s case
both states are sharing the services of the employee, so he must be treated
as if he were working for a single employee. But how is Gordon’s
payroll calculated? Suppose Gordon is paid $28.50 per hour by Pennsylvania
and $24.90 per hour in Maryland. During the workweek he works 36 hours
in PA and 20 hours in MD for a total of 56 hours. Any overtime pay has
to be allocated between the two states on a pro-rated basis based on Gordon’s
regular rate of pay. So we would calculate Gordon’s pay as follows:
- Total wages in PA. ($28.50/hr x 36 hr = $1,026.00)
- Total wages in MD. ($24.90/hr x 20 hr = $498.00)
- Total wages. ($1,026.00 + $498.00 = $1,524.00)
- Regular rate of pay. ($1,524.00 / 56 hr = $27.21/hr)
- Overtime pay. (16 hr x $27.21/hr x 50% = $217.68)
- PA’s proportional share of overtime pay. ($217.68 x 36 hr / 56 hr = $139.94)
- MD’s proportional share of overtime pay. ($217.68 x 20 hr / 56 hr = $77.74)
- Total pay in PA. ($1,026.00 + $139.94 = $1,165.94)
- Total pay in MD. ($498.00 + $77.74 = $575.74)
Common Paymaster
Betty appears to be
in a situation that would fall under the rules for common paymasters.
Basically, when two or more related corporations employ the same individual
at the same time, one of the employing corporations will pay that individual
on behalf of all of the corporations. This method is often used to
reduce the employer’s share of social security and unemployment taxes.
Since the employee is viewed as having only a single employer, the individual’s
employers do not have to pay more in matching social security and FUTA
taxes than if the individual were employed by a single employer. This
arrangement is allowed in some states for state unemployment compensation
purposes, but some states do not accept it.
In order for the common paymaster method to be used, there are two basic requirements:
- An employee must be employed concurrently by two companies, and
- The two companies must be related corporations as defined in the Internal Revenue Code
(IRC). [26 CFR 31.3121(s)(1)]
Assuming that the corporations
are related according to the IRC’s definitions, then Betty can be
paid by one of the corporations for all of the hours that she works
for both corporations. However, this does not mean that Betty is automatically
entitled to overtime under the common paymaster arrangement.
Since the common paymaster
arrangement is defined by the IRC and not the FLSA, its primary purpose
is to address the employer’s obligations regarding taxation. Nowhere
in this section of the Code does it address the issue of employee compensation
or overtime.
Betty would be entitled
to overtime pay under the common paymaster arrangement only if her employment
met the criteria outlined in 29 CFR 791.2 regarding joint employment.
So even if the common paymaster arrangement is being used for a particular
employee, the circumstances must analyzed for each situation.
So let’s consider
Betty’s case.
- Do the employers share her services? In this case, the answer would be no because
Betty is performing totally different functions in each company.
In one she is administrative assistant; in the other she is a telephone
operator.
- Is one employer acting directly or indirectly in the interest of the other in relation
to Betty? Probably not. Each employer is acting independently of
the other with regard to Betty’s employment.
- Do Betty’s employers share control of her activities? In this case, the answer
would appear to be no. There is no coordination of her activity and
her performance in one company has no effect on her performance for
the other company. However, 29 CFR 791.2(b)(3) refers to deemed control
because one employer controls the other. In Betty’s situation
the pharmaceutical company may have control over the subsidiary.
In that case, Betty would be in a joint employment relationship with
the two companies and she would be entitled to overtime.
So in Betty’s
case, if neither company has control over the other, she would not
be entitled to any overtime because she is not jointly employed by
the two corporations. One of the corporations may act as a common paymaster
so that she only receives one paycheck each payroll period, but she
is still only employed part-time by each company. But if one corporation controls
the other, then she would be entitled to overtime pay.
In the vast majority
of cases individuals who work for multiple employers are not entitled
to overtime compensation unless they work more than 40 hours a week for
a single employer. However, as we have discussed in this article, there
may at times be situations where an individual may be viewed as being
jointly employed by two employers, whether or not they are related, and
in those cases the individual may be legally entitled to receive overtime
compensation when the total number of hours worked for all employers exceeds
the maximum of 40 hours per workweek.
**Robert W. Ditmer, CPP, is Controller of Parker, Cade & Large, Inc., a commercial real estate development and construction company located in Columbia, Maryland. Mr. Ditmer has worked in five different states and has experience dealing with multi-state taxation involving states with reciprocal agreements and those that do not. He can be reached at robertwditmer@yahoo.com.
