TOP TIP: Remember That You’re Still Responsible for What Your PEO or TPA Does

Many employers choose to outsource aspects of human resources administration, such as payroll or leave tracking, to professional employer organizations (PEO) or third party administrators (TPA). Employers assume that, once it is out of their hands, they can simply forget about it. But what they should realize is that PEOs or TPAs are the employer’s agent – and the employer will be liable for their noncompliance with the law.

A recent case makes this point. In Parks v. Central USA Wireless LLC, a wireless company turned over its payroll and related obligations to a PEO. The company admittedly failed to pay overtime to certain workers. Under the Fair Labor Standards Act, liquidated damages in the amount of the unpaid overtime is awarded unless the employer can show that the overtime violation “was in good faith and that [the employer] had reasonable grounds for believing that [the] act or omission was not a violation” of the FLSA. In this case, the employer argued that it relied on the PEO to carry out its payroll function and “we didn’t think anything else about it.”

The U.S. District Court for the Southern District of Ohio found that the employer failed to show that its act was in good faith and that it had reasonable grounds for believing that it had not violated the FLSA, such as by consulting with the PEO or an attorney as to whether these employees were exempt from overtime under the law. To the contrary, the CEO’s statement that they “didn’t think anything else about it” once turning it over to the PEO was evidence of negligence, warranting the imposition of liquidated damages.

The lesson for employers is that they must continue to do their due diligence to ensure that they are in compliance with the law – even and especially where they choose to outsource their responsibilities to others.