Many organizations use internship programs, and these programs can have many advantages for the employer and the intern. However, employers that hire interns must be aware of the rules that apply to interns under the Fair Labor Standards Act (FLSA).
The FLSA requires most employees of for-profit employers—including interns—to be compensated for their services. Unpaid internships are generally permissible in the public sector and for nonprofit charitable organizations. However, interns of for-profit private sector companies generally must be paid at least the minimum wage and receive overtime compensation. There is a very limited exception to this rule for trainees who participate in an internship program for their own educational benefit.
The Department of Labor (DOL) issued Fact Sheet #71 to provide guidance for employers on internship programs and compliance with the FLSA. This guidance includes an explanation of the test employers can use to determine whether an intern must be compensated as an employee or whether he or she may be unpaid. This Compliance Overview includes the DOL’s guidance in Fact Sheet 71.
The FLSA requires “for-profit” employers to pay employees for their work. Interns and students, however, may not be “employees” under the FLSA. In that case, the FLSA does not require compensation for their work.
The Test for Unpaid Interns
On Jan. 5, 2018, the DOL adopted the “primary beneficiary test” to determine whether an intern or student is, in fact, an employee under the FLSA. Courts have favored this test in the past for this purpose. In short, this test allows courts to examine the “economic reality” of the intern-employer relationship to determine which party is the “primary beneficiary” of the relationship. Courts have identified the following seven factors as part of the test:
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; and
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.
Courts have described the primary beneficiary test as a flexible test, and no single factor is determinative. Accordingly, whether an intern or student is an employee under the FLSA necessarily depends on the unique circumstances of each case.
If analysis of these circumstances reveals that an intern or student is actually an employee, then he or she is entitled to both minimum wage and overtime pay under the FLSA. On the other hand, if the analysis confirms that the intern or student is not an employee, then he or she is not entitled to either minimum wage or overtime pay under the FLSA.
This Compliance Overview is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.