Overtime and Multiple Employers

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.