What is 'Special Employer'

A special employer is an employer who receives an employee on loan from another business, and who is not the employee’s original employer. A special employer may be held responsible for the actions of the employee, and the business that lends the employee is generally not held responsible, despite being the permanent employer.

BREAKING DOWN 'Special Employer'

Businesses may let other businesses borrow their employees for a period time. This arrangement is known as a special employer relationship, and it is regulated under the borrowed servant rule. The business that loans out the employee to the special employer is referred to as the general employer. The employee, despite not having a regular employer-employee relationship with the special employer, is considered to have an implied employment contract.

A worker who employed under a special employment arrangement has the same rights and protections under federal employment laws as any other worker in the U.S. As such, the Department of Labor has created rules regarding special special employment. When special employment exists, all of the employers are responsible, jointly and individually, for complying with the laws. A special employment arrangement can be vertical or horizontal in nature.

  • Vertical. In vertical joint employment, one employer provides workers to another, and the worker is economically dependent on both. An example is a worker employed by a staffing agency and assigned to work at a manufacturing plant.
  • Horizontal. In horizontal joint employment, the employee has two or more employers that are separate companies but have a relationship or affiliation with each other. Typically, the employee performs work for each company. For example, Jim and Bob are brothers and each owns a restaurant. Whether workers are hired by Jim or Bob, they typically work at both restaurants.

Liability for Special Employers

In order for a special employer to be considered liable for damages or injuries sustained by an employee borrowed from a general employer, three rules must be met. First, an express or implied contract to hire the borrowed employee must be made, and the employee has to be aware of the contract details. Second, the work being done is the work that the special employer typically does. Third, the special employer controls the details of the work that the borrowed employee does.

In order for the special employer not to be held liable, an agreement between the general employer and the special employer would have to indicate that the general employer would provide insurance coverage to the employee being borrowed. For example, the general employer would have to extend workers’ compensation coverage. The insurer of the general employer will hold the special employer liable for the actions of the employee on loan unless there was an exclusion endorsement that extended coverage to the special employer.

Contracting firms are commonly associated with borrowed employee arrangements, since they function as middlemen between workers and companies that are looking to have work done.

RELATED TERMS
  1. General Employer

    An employer who loans an employee to another business, and who ...
  2. Employment Agency Fees

    Employment agency fees are paid to an employment agency when ...
  3. Convenience of Employer Test

    The convenience of employer test is used to determine whether ...
  4. Employment Cost Index (ECI)

    The Employment Cost Index (ECI) is a quarterly economic series ...
  5. Workers' Compensation Coverage ...

    Workers' Compensation Coverage B is an insurance policy that ...
  6. Unit Benefit Plan

    A unit benefit plan is an employer-sponsored pension plan with ...
Related Articles
  1. Insights

    What You Need To Know About The Employment Report

    This widely watched indicator of economic well-being directly influences the market.
  2. Managing Wealth

    Top Job Perks You May Not Have Heard Of

    Companies are becoming increasingly creative with their benefits packages, in order to attract younger employees.
  3. Retirement

    The 401(k) and Other Qualified Plans Tutorial

    Learn about eligibility requirements, contributions and distribution rules for these retirement plans.
  4. Retirement

    Is Your 401(k) Administrator Competent?

    The more that employees know about their employee 401(k) plans, the better. But what doesn't your administrator know?
  5. Investing

    Why Employees Need an Investment Policy Statement

    Here's why having an investment policy statement is helpful if you have equity compensation.
  6. Small Business

    How to fill out an I-9 form (step-by-step)

    Step-by-step, here's how you and the employee you've hired fill out the required I-9 verification form from the U.S. Citizenship and Immigration Services.
  7. Tech

    How Betterment Eliminated Third-Party Admins to Cut Costs

    Once Betterment decided to offer 401(k) plans, the robo-advisor decided to use one of its strongest asset – algorithms – to make its offerings more affordable.
  8. Personal Finance

    America’s Labor Market: Hidden Distortions and Uncertain Forecasts

    Employment reports released by the Bureau of Labor Statistics have a profound impact on political, business, consumer, and investor behavior.
RELATED FAQS
  1. Can LLCs have employees?

    Discover how limited liability corporations (LLC) can have an unlimited number of employees and the legal steps required ... Read Answer >>
Hot Definitions
  1. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  2. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  3. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  4. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  5. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  6. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
Trading Center