Welcome to Issue #17 of The Compliance Brief. Every Tuesday I break down the HR and labor law updates that actually matter to small businesses — in plain English, no legal jargon.

The DOL Wants to Rewrite Who Counts as Your Employer

The Department of Labor has proposed reinstating the "economic realities" test for determining joint-employer status under the FLSA, FMLA, and agricultural worker protection laws. If that sounds abstract, here's why it matters: if you use staffing agencies, operate as a franchise, or rely on subcontractors, this rule determines whether you can be held jointly liable for their wage-and-hour or leave violations — even when you don't control day-to-day supervision.

The economic realities test looks at the whole relationship rather than a narrow checklist — things like who sets pay rates, who can hire and fire, and who supervises the work. It's a more expansive standard than the test currently in place, which means more businesses could find themselves classified as joint employers than expect to be.

If you rely on any outside labor arrangement, this is worth watching closely, since the exposure isn't just for the staffing agency or franchisor — it can land on you too.

Action step: If you use staffing agencies, franchise arrangements, or subcontractors, map out who actually controls wages, scheduling, and supervision for those workers. That documentation will matter if the rule finalizes.

1. IRS Sends a New Round of ACA Penalty Letters

The IRS has begun issuing Letter 226-J notices for prior tax years, proposing employer shared responsibility payments for applicable large employers. Under a recent law change, employers now get at least 90 days from the initial letter to respond before further action — a meaningful window, but only if you catch the letter and act on it in time.

2. A Federal Appeals Court Narrows a Wage Claim Avenue

The Third Circuit ruled that the FLSA doesn't provide a remedy for unpaid straight-time hours in a week where an employee also worked overtime — so-called "overtime gap time" claims. It's a technical ruling, but it limits one path workers have used to recover unpaid regular wages, and it deepens a split between circuits worth watching if you operate across state lines.

3. California Bans "Stay-or-Pay" Training Repayment Clauses

For contracts entered into on or after January 1, 2026, California employers generally can't require workers to repay training costs or other debts simply because they leave the job. If your offer letters or training agreements include repayment clauses, they may need updating — even if you're not based in California but have employees there.

✅ Map out control over wages, scheduling, and supervision if you use staffing agencies, franchises, or subcontractors

✅ Watch for IRS Letter 226-J and note the 90-day response deadline if one arrives

✅ If you operate in multiple circuits, understand how "overtime gap time" claims are treated where you do business

✅ Review training repayment or "stay-or-pay" clauses in CA employee agreements

The DOL's guidance on joint-employer status under the FLSA explains the economic realities test and how it's applied: dol.gov/agencies/whd

That's it for this week. Short, actionable, no fluff.

If this was useful, forward it to another small business owner who could use it.

See you next Tuesday.

The Compliance Brief thecompliancebriefhq.com

This is for informational purposes only and does not constitute legal advice.