A joint employer is a business that shares legal responsibility for workers employed by another business, because both control the essential terms of their work. Joint employer status can make a company liable for wage, labor, and discrimination violations of a staffing agency, franchisee, or contractor.
Key takeaways
- Common situations include staffing agencies, franchises, PEOs, and subcontracting.
- Under the National Labor Relations Act, the 2020 standard requiring substantial direct and immediate control applies again as of 2026.
- Wage and hour cases under the FLSA use courts' economic-realities tests.
- Joint employers can share liability for overtime, union bargaining, and discrimination claims.
How joint employer works
Different laws use different tests. For union and labor relations purposes, the NLRB withdrew its broader 2023 rule in February 2026 and re-adopted its 2020 standard (Holland and Knight, NLRB withdraws the 2023 joint employer rule). Under that test, a company is a joint employer only if it shares or co-determines essential terms, such as wages, benefits, hours, hiring, discharge, discipline, supervision, and direction, and actually exercises substantial direct and immediate control over at least one of them. Indirect or reserved but unused control isn't enough on its own.
For wage and hour claims, courts apply economic-realities tests, asking who hires and fires, supervises schedules, sets pay, and keeps records. The Department of Labor's 2020 FLSA joint employer rule was rescinded in 2021, so court tests govern.
In a PEO arrangement, the PEO and client share some responsibilities by contract, a model called co-employment, but the client usually keeps day-to-day control and remains responsible for many workplace decisions.
Joint employer example
A distribution center uses a staffing agency to supply 60 warehouse workers. The center's supervisors set their schedules, assign tasks, approve overtime, and tell the agency who not to send back. If the agency fails to pay overtime correctly, the center can be a joint employer under the FLSA and liable for back wages. If the center only accepted or rejected workers and the agency handled all supervision and scheduling, the risk would be much lower.
Why joint employer matters for employers
Joint employer exposure grows as companies use more contingent labor. Wage enforcement is active: the Department of Labor recovered more than $259 million in back wages in fiscal year 2025 (US Department of Labor, Wage and Hour Division FY2025 results). When a supplier underpays workers, plaintiffs often name the larger company too.
Contracts help, but conduct decides. Indemnification clauses, audit rights, and clear allocation of duties protect you financially, while limiting direct supervision of contractor staff reduces the chance of being found a joint employer in the first place.
Common joint employer mistakes to avoid
Supervising agency staff like employees
Direct control over schedules and discipline is the strongest evidence of joint employment.
Relying on the contract alone
Agencies and courts look at what actually happens on the floor.
Not checking supplier compliance
Audit rights and wage certifications reduce risk.
Confusing PEO co-employment with full outsourcing
The client still controls daily work and remains responsible for many obligations.
Joint employer: questions people also ask
What makes a company a joint employer?
Is a PEO a joint employer?
What is the current NLRB joint employer standard?
Are franchisors joint employers?
Why does joint employer status matter?
Tools, templates, and guides for this topic
Where to go from here
See what helps
Get matched options
Three platforms for your size and states, with pricing ranges.
Start AI MatchGet free quotesHow we wrote this definition
HRTally glossary entries are written by people who have run US payroll, benefits, and HR operations, then checked line by line against primary sources such as the IRS, Department of Labor, EEOC, and Bureau of Labor Statistics. Dollar limits and rates are for 2026 unless stated. We review every entry at least twice a year and whenever a rule changes. This page explains general rules and isn't legal or tax advice; state law can differ. Read our editorial standards.
Sources
Cite this definition
Teachers, consultants, and HR communities are welcome to quote this definition with a link back to HRTally.
<blockquote>A joint employer is a business that shares legal responsibility for workers employed by another business, because both control the essential terms of their work. Joint employer status can make a company liable for wage, labor, and discrimination violations of a staffing agency, franchisee, or contractor.</blockquote><p>Source: <a href="https://www.hrtally.com/hr-glossary/joint-employer/">HRTally HR Glossary, Joint employer</a></p>
Written by the HRTally Research Team
Our guides are written and reviewed by people with hands-on US HR, payroll, and HR technology experience. Legal and tax facts are checked against primary sources, such as the Department of Labor, IRS, EEOC, and USCIS, and linked at the end of each guide. Vendors never review or pay for our editorial content.