Subscribe (Free) to
Daily or Weekly Newsletters
Post a Job

Featured Jobs

Trust Accounting/5500 Specialist

Sentinel Benefits & Financial Group
(Remote / Wakefield MA)

Sentinel Benefits & Financial Group logo

Conversions Specialist

BlueStar Retirement Services, Inc.

BlueStar Retirement Services, Inc. logo

DB/DC Administrator

Primark Benefits
(Remote / San Mateo CA)

Primark Benefits logo

Pension Administrator

American Pension, LLC
(Berkeley Heights NJ)

American Pension, LLC logo

Retirement Plan Administrator

Prime Pensions Northwest, LLC

Prime Pensions Northwest, LLC logo

Plan Administrator

BlueStar Retirement Services Inc.

BlueStar Retirement Services Inc. logo

Retirement Plan Administrator

Retirement Solutions Specialists, LLC

Retirement Solutions Specialists, LLC logo

Plan Administration Manager

Southern Pension Services
(Remote / Tampa FL)

Southern Pension Services logo

Retirement Plan Administrator

Fulton Bank / Fulton Financial Advisors

Fulton Bank / Fulton Financial Advisors logo

Pension Administrator

Actuaries Unlimited, Inc.
(Remote / Los Angeles CA)

Actuaries Unlimited, Inc. logo

Manager, Client Relationship Management

Guideline, Inc.
(Remote / Solana Beach CA)

Guideline, Inc. logo

Retirement Operations Specialist

Fringe Benefit Group

Fringe Benefit Group logo

Customer Success Associate

Guideline, Inc.
(Remote / Austin TX / Solana Beach CA / Portland ME / San Mateo CA / CO / FL / GA)

Guideline, Inc. logo

Retirement Plan Administrator

Nicholas Pension Consultants
(Remote / Rancho Cordova CA / Corona CA)

Nicholas Pension Consultants logo

Member Services Supervisor

DC Retirement Board
(Remote / Washington DC)

DC Retirement Board logo

Client Manager DB/DC

CMC Pension Professionals
(Remote / Glendale CA)

CMC Pension Professionals logo

Retirement Plan Account Manager

Aegis Retirement Partners, LLC
(Remote / CT / MA / NH / RI)

Aegis Retirement Partners, LLC logo

Pension Plan Administrator

DeMars Pension Consulting Services, Inc.
(Overland Park KS / MO / NE / OK)

View More Employee Benefits Jobs

Free Newsletters

“BenefitsLink continues to be the most valuable resource we have at the firm.”

-- An attorney subscriber

Mobile App image LinkedIn icon
Twitter icon
Facebook icon

BenefitsLink > Q&A Columns >

Who's the Employer?

Answers are provided by S. Derrin Watson, JD, APM

Employees Working for Franchisor

(Posted April 13, 2000)

Question 48: We are reviewing a plan for takeover. The owner of the very small company also owns a fast food restaurant franchise. We are told that they have never considered the two as common/controlled for testing, etc., because the employees of the restaurant are employed by the franchise sponsor. Does that sound right?

Answer: We start where you did, that if one individual owns two businesses, then they are under common control, and all employees of either are deemed to be employed by a single employer.

Now we ask who are the employees of fast food outlet. The employer says "We don't have any employees." You say "Oh? Who's flipping burgers and making shakes?" The employer responds "They aren't on my payroll; they work for the franchisor." And you say ... leased employees!

I don't have enough information to say whether the workers are common law employees of your client or not. A case can be made that they are common law employees of your client, because your client is the one giving day-to-day directions about what they do. However, they do have to follow the instructions of the franchisor as well, and I would guess that they would be found to be common law employees of the franchisor.

But, even if there are common law employees of the franchisor, they are certainly working under your client's direct control, and are performing services for your client, benefiting his (or her) bottom line. So, if your client is not their employer, then they would meet the tests of being leased employees if they satisfy the substantially full-time requirement.

Under IRS Notice 84-11, a worker is treated as working substantially full-time for a recipient if the worker performs at least 1,500 hours of service for that recipient in a 12 month period. Given the high number of part-time employees in a typical fast food operation, that requirement (about 30 hours per week) probably keeps many of them from ever gaining the status of leased employee.

But, if someone does satisfy that requirement, then he or she is a leased employee of your client, and hence is deemed to be an employee of your client. And, if the individual is deemed to be an employee of the fast food operation, then he or she is deemed to be an employee of the other business as well, due to Code Section 414(c).

My recommendation is that you have the situation reviewed by counsel. The first question counsel should examine would be to verify that the workers are not common law employees of your client. (The Microsoft case keeps teaching us that the employer isn't necessarily the company issuing the paychecks--it's the company that has control.) If they are common law employees of the franchisee (your client), then the 1,500 hour rule is irrelevant. If they are not common law employees, then review to determine if they are leased employees.

This question is a good demonstration that you cannot stop at a controlled group/common control analysis. You need to look at all the different ways someone can be treated as your employee. I cover these issues at length in my book, Who's the Employer?. (Common law employees are discussed in chapter 2. Leased employees are examined in chapter 4. Common control and controlled groups make up chapters 6 through 12.)

Important notice:

Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner or to readers. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of this and similar situations.

The law in this area changes frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the law (statutes, regulations, rulings, court decisions, etc.) that occur after the date on which a particular Q&A is posted.

Copyright 1999-2017 S. Derrin Watson
Related links:

(restricted access)

(restricted access)

© 2022, Inc.