How does using a PEO affect small business compliance with FMLA?

On November 17, 2008, the U.S. Department of Labor published a major overhaul of its Family Medical Leave Act (FMLA) regulations. One of the most important changes that may affect some small businesses are the provisions dealing with the joint employer coverage regulation addressing Professional Employer Organizations (PEO) arrangements and clarifies the differences between staffing arrangements and PEOs.

FMLA requires that most businesses employing more than fifty people provide extended unpaid leave benefits for employees so they can address their own or their family’s serious medical conditions.

PEOs are companies that contract with businesses to perform administrative functions such as payroll, benefits, regulatory paperwork and updating employment policies. As such, the employees of the client’s business are also employees of the PEO for payroll, benefit, and administrative reasons.

Prior to the 2008 amendment, small business employees status as co-employees of a PEO generally meant that they were eligible for the extended medical leave benefits provided by FMLA. However, the recent amendment to FMLA regulations means that most employees of companies using PEOs are no longer eligible for FMLA benefits based upon the total number of people employed by the PEO.

The determination of whether a PEO is a joint employer pursuant to FMLA turns on the realities of the situation and must be based upon all the facts and circumstances. A PEO does not enter into a joint employment relationship with the employees of its client companies when it merely performs such administrative functions as providing payroll and benefit services. However, if the PEO has the right to hire, fire, assign or direct and control the client’s employees, a joint employer situation may exist, and such employers may be liable for providing its employees the benefits required by FMLA.

Fincher Denmark & Williams stands ready to assist employers of any size in evaluating and addressing, not only the PEO joint employer provision, but all provisions of the Family Medical Leave Act, as well as any other personnel issues. For more information on how FDW may be of assistance, please call or email Stuart Morelli at 770-478-9950.

Disclaimer: This newsletter is designed to provide general information only. The information presented here is not intended to constitute formal legal advice nor is the provision of the same meant to result in the formation of a lawyer/client relationship.