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I've got a friend (in the Nashville, TN area) who is working for someone that owned a franchise and now opened up a second one. My friend was working 45 hours a week and got overtime, but now the owner has put them on both payrolls and splits their hours between the two, and therefore, doesn't have to pay overtime.

First, is there anything illegal about this? Second, does this maybe cost the owner more than paying 5 hours of overtime? I know there are hidden cost in having employees on the payroll. Does the owner maybe pay more in workers comp or anything? Just wondering if there's any incentive for the owner to only employ them at one company and just pay them the overtime, rather than maintaining them on two separate payrolls, even if it isn't necessarily illegal.

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    You should mention the country that you are in. There's nothing inherently illegal, but if the boss is doing it to avoid paying full salary, and has the employee working on a common task/job across both companies (rather than two different jobs), it could very well be considered fraud. Your friend should quit though, as that's obviously an abuse of power by the boss.
    – M28
    Commented Nov 5, 2018 at 15:39
  • @Hoopdady - you should update the question to include your location. I don't think it matters here (UK), but may well do in the US, where I believe employers must pay healthcare (Obamacare?) over a certain number of hours per week. (Matt beat me to it by a minute).
    – Justin
    Commented Nov 5, 2018 at 15:41
  • @Justin the location is Nashville Tennessee. I'll update the question
    – Hoopdady
    Commented Nov 5, 2018 at 15:43
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    Hope this is ok, but I posted this question over at law.se
    – BradC
    Commented Nov 5, 2018 at 19:16
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    @marcelm In the US, actual employment contracts are very rare, and is typically only for high-level mangers or commissioned salespeople (and unions, and Montana). Otherwise, most employment is "at will", meaning they could let you go for (almost) anything, but also that you can leave (without penalty) at any time. It is very common for entry-level workers to get multiple part time jobs at different places.
    – BradC
    Commented Nov 5, 2018 at 20:48

3 Answers 3

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Without knowing the exact jurisdiction it's hard to comment on the legality of the situation.

However in the general case if the two franchises are seperate legal entities (regardless of whether they have the same owner) then what the owner has done is the correct way to do things.

Tennessee isn't somewhere I'm super-informed on but IIRC it may well be more expensive for the owner to employ them in the two separate companies as both will have to pay unemployment insurance premiums for the individual (so they are basically going to be double paying that). Similarly with worker's comp (assuming both companies have 5 or more total employees) - they would be required to pay for it for the employee for both companies.

However therein could be the reason why your friend's employer has done this - as these are state department of labor regulations using the previous O/T method of having the your friend work for both companies could be seen by the DoL as them attempting to evade these responsibilities.

EDIT: This question over on Law.SE seems to provide a pretty comprehensive answer to the legalities, and it sounds as if the employer would still be required to pay overtime when hours exceed the 40 total as they would be considered in "joint employment" in this scenario.

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  • Yeah. I think they have set up everything correctly. Any thing on the second part? Is there any cost savings reason to not employee them a both companies/
    – Hoopdady
    Commented Nov 5, 2018 at 15:46
  • @Hoopdady Possibly.. I'd need country/state/region to know that though I'm afraid. Additionally it's possible (again depending upon location) that the might not be allowed to have them employed at one but working at both.
    – motosubatsu ♦
    Commented Nov 5, 2018 at 15:51
  • its Nashville, TN
    – Hoopdady
    Commented Nov 5, 2018 at 16:14
  • @Hoopdady updated with what I know about TN for that aspect.
    – motosubatsu ♦
    Commented Nov 5, 2018 at 16:21
  • Legal? Yes... ethical? Not so much.
    – RandomUs1r
    Commented Nov 5, 2018 at 21:08
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The big question is how is the company set up. The owner may have created two different companies, 1 per franchise, or 1 company for both.

If it's two different companies then legally he has 2 jobs that have nothing to do with each other (hence no overtime).

If he got 2 part-time jobs with two different companies, he obviously wouldn't be owed overtime. His best bet is probably to talk with the owner.

NOTE: I'm not a lawyer

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I don't condone a company doing this, but this is why some do.

Splitting employees across the two separate companies can save them money in several ways:

  • Overtime those 45 hours are now not overtime.
  • Benefits. The company can limit benefits to those working close to full time. Which can be avoided be splitting those hours.

There is one complication for the company. By splitting your work across two locations, scheduling becomes more complex, and if they were truly two different companies the scheduling should be separate.

For the employee there is another concern. Taxes. In the end it will workout the same, but putting numbers into two W-4s becomes more complex. Especially if the goal is to avoid a large refund in the the spring, or even worse a large bill in the spring.

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  • Of course, if there were certain types of "cafeteria benefit plans," or employer-sponsored health savings plans (for USA) where an employer kicks in a certain portion of funds (health savings - the employer pays in the first X amount of dollars to the savings plan) or unused benefit funds get returned to the employee in their paycheck, then OP being an employee of both means they might be able to get something additional.
    – PoloHoleSet
    Commented Nov 5, 2018 at 16:54
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    If my company did that, I'd probably swap my vision insurance coverage between the two, alternating every year, and get glasses every year instead of every two, and I'd definitely take advantage of the health savings plan at both, while contributing only the minimum necessary to exploit the maximum employer contribution, instead of putting more in to shelter my own out of pocket expenses from taxes. Yeah, our health system is a complicated mess over here.
    – PoloHoleSet
    Commented Nov 5, 2018 at 16:55
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    @PoloHoleSet the companies might have a rule that entitles you to benefits at 29 hours per week. Oops you never get to that level because they limit you to 25 hours in each company.
    – mhoran_psprep
    Commented Nov 5, 2018 at 17:00
  • You did see that I both bolded and italicized the word "might," right? :D
    – PoloHoleSet
    Commented Nov 5, 2018 at 17:02

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