DOL clarifies joint employment under the FLSA

The Department of Labor (DOL) recently issued Opinion Letter FLSA-2025-05, offering important clarification on how the Fair Labor Standards Act (FLSA) applies when employees work for more than one related business. The question before DOL involved whether a restaurant and a members-only club, both operating in the same hotel, could be treated as joint employers for overtime purposes. 

The DOL’s answer was yes. Because the two entities shared ownership, management, employees and facilities, they were considered joint employers under the FLSA. That means the employees’ hours at both businesses must be combined when determining overtime eligibility. If the total number of hours worked in a week exceeds 40, the employee must receive overtime pay at least one and a half times the regular rate for all hours beyond that threshold.

Quick overview of what the above means: Company A and Company B are two separate legal entities, but they share the same owners, have overlapping management, operate out of the same physical location and frequently share employees between the two businesses. For instance, an employee named Jenny works 25 hours per week at Company A and 20 hours per week at Company B, for a total of 45 hours in a single work week. 

Under the FLSA, when two or more entities are considered "joint employers," the hours an employee works for each entity in a workweek must be aggregated for purposes of determining overtime eligibility. The joint employer determination is based on the degree of common control, shared management, ownership and the integration of operations between the entities. If the entities share ownership, management, employees and facilities, they are likely to be considered joint employers.  

Application of the law: 

• Jenny worked a total of 45 hours across both Company A and Company B in the week.
• Because the two companies are joint employers, her hours must be combined.
• Under the FLSA, overtime pay is required for all hours worked over 40 in a workweek, at a rate not less than one and one-half times the regular rate of pay.
• Therefore, Jenny must be paid her regular rate for the first 40 hours and at least 1.5 times her regular rate for the additional five hours.

How the DOL views joint employment

The FLSA requires that covered employees receive overtime pay for hours worked over 40 in a workweek. But determining whether two related businesses count as one employer can be tricky. The DOL evaluates whether the businesses are “sufficiently associated with or related to each other” in how they control the employee’s work. 

In this case, the DOL found several key factors pointing to joint employment: 

• The businesses shared common ownership and operated under overlapping management.
• Employees often worked for both entities, performing similar duties in the same facility.
• Payroll and scheduling decisions were coordinated across both operations.

Due to these connections, the DOL concluded that the restaurant and the club were not truly independent businesses. Instead, they were part of a single integrated enterprise, for purposes of the FLSA’s overtime rules (as with the example mentioned earlier). 

Implications for payroll and HR professionals

For payroll and HR professionals, this opinion letter is a call to review how related entities coordinate employment practices. Even well-intentioned employers can stumble into violations if their systems don’t capture hours worked across multiple business units. 

To stay compliant, businesses and professionals should: 

1. Review organizational relationships: Identify where common ownership, management or staff overlap exists.
2. Audit timekeeping systems: Ensure that hours worked across entities are tracked and combined accurately.
3. Align policies and communication: Make sure managers across divisions understand the importance of tracking total hours for shared employees.
4. Train supervisors: Those making schedules should know that shared employees may reach overtime thresholds more quickly.
5. Document employment relationships: Written agreements and clear job descriptions can help demonstrate independent operations if they truly exist.

Payroll providers, tax professionals and accountants who advise clients with multiple entities should also ensure their clients understand that joint employment doesn’t depend on how businesses are labeled, but on how they function in practice. 

Compliance through coordination 

The DOL’s reasoning in Opinion Letter FLSA-2025-05 highlights a broader theme in wage and hour compliance: coordination is key. Businesses often expand by creating related entities, franchises, management companies or sister organizations to manage risk or streamline operations. But when those entities blend into their management or workforce, the boundaries can blur.

For employers, that means compliance can’t be siloed. HR, payroll, tax professionals and legal teams need to work together to ensure the company’s practices align with how the DOL views employment relationships. A consistent approach across all related operations reduces the risk of costly FLSA violations. 

Takeaways 

Opinion Letter FLSA-2025-05 reinforces a simple truth: What matters most is how work is done, not how a business is structured on paper. If two entities share ownership, management and employees, they may be considered joint employers under the FLSA, even if they maintain separate corporate identities. 

For employers, tax and payroll professionals, this serves as a timely reminder to evaluate the practical relationships between business units, document employment arrangements clearly and ensure overtime calculations reflect the total hours employees work across all related entities. 

Staying proactive doesn’t just prevent penalties; it builds trust with employees and demonstrates a commitment to fair, lawful pay practices. In the world of wage and hour compliance, that’s good business for everyone.