Use a Staffing Agency or Run a Franchise? The DOL's Joint Employer Rule Could Make You Liable

If a worker's paycheck comes from one company but your business directs their day, who owes the overtime? A proposed Department of Labor rule is meant to answer that question, and the answer matters to anyone who uses a staffing agency, runs a franchise, subcontracts work, or owns two related businesses that share staff.

What the Labor Department Proposed

The DOL issued the proposed rule on April 23, 2026, and the SBA's Office of Advocacy flagged it to small businesses on May 6. The comment period closed June 22, 2026. The rule covers "joint employer" status under three laws: the Fair Labor Standards Act (minimum wage and overtime), the Family and Medical Leave Act, and the Migrant and Seasonal Agricultural Worker Protection Act. It does not change the separate, narrower standard under the National Labor Relations Act.

According to the SBA Office of Advocacy, there has been no guidance for employers on this subject since 2021. A 2026 regulatory agenda summarized by SHRM notes the joint employer proposal has no timeline for a final rule, so nothing is binding yet. But the proposal shows how the department plans to evaluate these relationships, and enforcement and lawsuits tend to follow the agency's thinking.

Two Kinds of Joint Employment

Vertical: when another company controls your workers (or you control theirs)

This is the staffing agency, franchise, vendor and subcontractor situation. The proposal uses four factors to decide whether a company is a joint employer:

• Whether it hires or fires the worker
• Whether it substantially controls the worker's schedule or conditions of work
• Whether it sets the pay rate and method of payment
• Whether it maintains employment records

No single factor is decisive, and the actual exercise of control matters more than authority that a contract reserves on paper. In practice, a contract clause that says "we may direct the worker's hours" counts for less than whether you actually do.

Horizontal: when two of your businesses share a worker

Employers that are "sufficiently associated" in employing the same worker can be jointly liable for overtime. The SBA's example: a worker who puts in 25 hours at a golf course and 25 hours at a restaurant under related ownership has worked 50 hours in total, which includes 10 overtime hours. Employers are generally treated as associated if they share the worker's services, act in each other's interest regarding the worker, or share control through common ownership or control.

That second category catches owners of more than one small business more often than they expect. If your café and your catering company share a cook, the hours may need to be added together.

What Does Not, by Itself, Make You a Joint Employer

The proposal lists activities that should not on their own create joint employment:

• Franchising, or entering into a brand or supply agreement
• Requiring compliance with general legal, health and safety standards
• Setting quality control standards
• Providing an employee handbook, health or retirement plans, or joint apprenticeship programs

For franchisors and franchisees, that language is the reassuring part. Setting brand standards alone is not meant to make a franchisor liable for a franchisee's payroll mistakes. The line is crossed when the company starts hiring, firing, scheduling or setting pay for the franchisee's workers.

Who Should Pay Attention

• Businesses that use staffing agencies. If you set a temp's schedule and supervise the work, the agency is not the only party who could owe overtime.
• Franchisees and franchisors. Watch how much operational control the franchise agreement actually exercises over staff.
• Contractors and subcontractors. A general contractor that directs a sub's crew day to day is closer to the line than one that only inspects the finished work.
• Owners of multiple entities. Shared staff across related businesses can trigger combined-hours overtime.

The article from the SBA does not provide cost estimates, so any dollar exposure depends on your payroll. The practical risk is back wages for overtime that no one on either side thought they owed.

What to Do Now

1. Map who controls what

For every worker who is not on your payroll, write down who hires and fires, who sets the schedule, who sets pay, and who keeps the records. If the answer is "us" for two or more, talk to your attorney.

2. Check shared workers

List anyone who works for more than one business you own or are affiliated with, and add their hours together for each week. If the combined total exceeds 40 and they are paid hourly, you may need to adjust.

3. Read your contracts

Look for indemnification clauses in staffing and subcontractor agreements, and confirm what the other party covers if a wage claim arises. Ask whether your business insurance includes employment practices coverage.

4. Separate real contractors from employees

The DOL is also working on its independent contractor test. Our guide on independent contractor vs employee covers how that classification works.

5. Keep your entity structure clean

If you operate multiple businesses, understand how they are organized. Our LLC formation guide explains the basics. Separate legal entities do not remove horizontal joint employment risk when ownership is shared, so do not assume a structure protects you from wage rules.

What Happens Next

The DOL has not announced when a final rule will arrive. Agency timelines often slip, and a final version could differ from the proposal. Even so, the four-factor test and the associated-employer concept are likely to guide how investigators view your arrangements in the meantime. The cheapest time to review them is before a wage claim lands.

This article is general information, not legal advice. Talk to an employment attorney about your specific arrangements.

Photo by Babak Eshaghian on Unsplash