The integrated enterprise test determines whether two or more separate entities are treated as one employer under the FLSA for coverage and liability purposes.
Why the integrated enterprise test matters for employers
The FLSA and other employment laws set coverage thresholds based on the number of employees. For example, FMLA covers employers with 50 or more employees. The integrated enterprise test prevents businesses from evading coverage by artificially dividing operations among multiple legal entities.
Courts apply a four-factor test to determine whether separate entities constitute a single integrated enterprise: (1) interrelation of operations, (2) common management, (3) centralized control of labor relations, and (4) common ownership or financial control. No single factor is decisive, and courts weigh all four together.
Interrelation of operations looks at shared facilities, equipment, record keeping, and bank accounts. Common management examines shared officers, directors, and supervisors. Centralized control of labor relations focuses on who makes hiring, firing, and pay decisions. Common ownership looks at ownership structures and financial relationships.
If two entities are found to be an integrated enterprise, their employee counts are combined for threshold purposes. This can mean a group of companies with 30 employees each is treated as a single 60-employee employer subject to FMLA.
Similar but distinct tests apply under Title VII (joint employer), NLRA, and state wage laws. The integrated enterprise analysis can also affect liability - a parent company may be held liable for a subsidiary's employment law violations if the two entities are sufficiently integrated.
How BEG advises multi-entity clients on payroll structure
BEG Managed Payroll helps multi-entity clients track employee counts, structure payroll correctly, and identify potential integrated enterprise exposure as part of fully managed payroll at $25-$45 per employee per month. Learn about BEG Managed Payroll.
Frequently asked questions
Does the integrated enterprise test apply only to the FLSA?
No. Similar tests apply under FMLA, Title VII, the NLRA, and various state employment laws. The specific factors and thresholds may vary by statute.
Can affiliated companies be treated as separate employers?
Yes, if they do not meet the integrated enterprise test factors. Genuine arm's-length relationships between separate entities with independent management and labor decisions are typically treated as separate employers.
Why does integrated enterprise status matter for payroll?
If entities are treated as one employer, their employee counts combine for coverage thresholds. It can also create joint liability for payroll tax obligations and wage and hour violations.
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About the author
Anthony Moretti is VP of Sales at Business Executive Group, where he builds BEG's managed payroll and HR service verticals for employers across Dallas-Fort Worth and nationwide. He writes the BEG Payroll Glossary to give employers plain-English answers on payroll and compliance.
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