The end of the school year is approaching, which means college and high school students will be looking for opportunities to gain experience in their chosen profession and make valuable connections with prospective employers.
The U.S. Department of Labor has not created or changed many of its opinions in recent years, but in January the department updated its guidance on internship programs and how they implicate the federal Fair Labor Standards Act. In other words, the agency evaluated whether interns must be paid.
The analysis of whether interns must be paid applies only to “for profit” employers. Nonprofit and public-sector entities are entitled, by law, to hire uncompensated volunteers, to include unpaid interns.
The central question in determining whether an intern must be paid is whether the intern qualifies as an “employee,” requiring compensation pursuant to the Fair Labor Standards Act.
In its updated guidance, the Labor Department relies on prior court decisions wherein the intern is considered an employee only if the employer is the “primary beneficiary” of the relationship. If the intern is the primary beneficiary of the relationship, the intern need not be paid.
In making this determination, the agency cites prior court cases identifying a seven-factor test:
- The extent to which the intern and the employer clearly understand there is no expectation of compensation. Any promise of compensation, express or implied, suggests 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.
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As noted by the Labor Department, the “primary beneficiary test” is a flexible one and no single factor will determine the employee status. Every situation is unique.
If, after considering the analysis, the employer determines the student is an employee, then the employee must be paid at least $7.25 per hour and must receive overtime compensation for all hours worked over 40 hours in a workweek. If the employer concludes that the intern is not an employee, the intern can work without compensation.
Employers who are considering bringing on an unpaid intern into the work environment should make sure that the intern understands (and thus provide in writing), that:
- this is an unpaid summer internship of X number of weeks and the intern is not an employee;
- the purpose of the internship is to introduce the individual to the industry and individuals within the organization, and is for the intern’s primary benefit;
- the hours of work will be “X”;
- the individual must comply with all organizational policies; and
- there should be no expectation of a continued relationship at the conclusion of the internship.
Employers can refer to the Labor Department’s fact sheet at http://www.wagehour.dol.gov or call (866) 487-9243.