Not long ago, students were happy to accept an unpaid internship to gain experience and build their resume, in the hopes that the internship would lead to a permanent job offer. Today, more and more employers are paying students so they don’t run afoul of wage and hour rules regarding internships.
The Department of Labor (DOL) recently updated its guidance for private sector "for-profit" employers and adopted a new standard for assessing whether interns qualify as employees under the Fair Labor Standards Act (FLSA). The new standard aligns with several recent appellate court decisions and establishes a "primary beneficiary test." This test takes seven factors into consideration when determining whether an intern should be paid or not.
In short, the seven factors help clarify the "economic reality" of the intern/employer relationship and who is the "primary beneficiary" of the relationship. These seven factors are flexible in the sense that no one single factor is determinative. Rather, the unique circumstances in each case are considered. The seven factors are:
- The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
- The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
- The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
- The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
- The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
- The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
- The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
Before moving ahead with an internship program, analyze the program against these seven factors to determine whether the intern or the employer is the "primary beneficiary" of the relationship. If the intern is the primary beneficiary, then he or she is not an employee. However, if the employer is the primary beneficiary, then the intern is entitled to the minimum wage and overtime requirements set forth by the FLSA.
In general, interns most often qualify as employees. However, unpaid internships in the public sector and for nonprofit charitable organizations are still generally permissible. Internship programs are a great way for employers and employees to "test the waters" to see if there is a good match for long-term employment opportunities post-graduation.
Source: Laurie Greenlees, Human Resource Business Advisor, Manager, HR Hotline, MRA - The Management Association