It is that time of year when employers are contemplating utilizing interns during the summer months. Employers must ask themselves the question as to whether interns should be paid a minimum wage and overtime in accordance with the Fair Labor Standards Act (FLSA), or not? Employers who intend to engage with interns should ask themselves this question and may want to consider the guidelines referenced in this article. Employers should also understand that the criteria for internships has changed over the last couple of years and that they must follow the FLSA guidelines as written today.
Since 2010, the U.S. Department of Labor Wage and Hour Division utilized a six-factor test to determine if an intern was an employee or an intern. If the individual met all six-factors, only then was the employer legally able to consider he/she an intern. In January of 2018, the U.S. Department of Labor Wage and Hour Division released a new test called the “primary beneficiary test”. The “primary beneficiary test” is geared toward determining whether or not the intern or student is the “primary beneficiary” of the relationship. This test allows courts to test the “economic reality” of the intern-employer relationship to determine the “primary beneficiary.” To put it in laymen’s terms, if the employer is the “primary beneficiary” of the relationship, the intern or student must be paid, and if the intern or student is the “primary beneficiary”, the intern or student, may be unpaid.
Internships should be constructed around a classroom or learning environment. Formal agreements with a high school, college or university who exercises oversight over the internship program and where the intern receives education credit for the experience should be implemented. The more that the experience provides the student with skills that may be used in multiple employment settings, the more likely the intern would be viewed as receiving training. If the intern is involved in an employer’s actual operations by learning skills that directly benefit the employer’s operation through the performance of routine work, the more the relationship is viewed as an employment relationship and not an internship. Thus, the intern must be paid in accordance with the guidelines of the FLSA.
If an employer utilizes interns to complement their existing workforce then interns should be paid at least minimum wage and compensated for their overtime, generally hours worked over 40 in a workweek, depending upon the state. If the employer would have hired temporary employees or required current employees to work additional hours had the interns not performed the work, then the interns are viewed as employees entitled to compensation in accordance with the guidelines of the FLSA.
If the employer provides job shadowing opportunities that allow an intern to learn under the close supervision of employees and they perform no work, or minimal work, this activity is likely to be considered an educational experience. However, if the intern receives the same level of supervision as other employees, it would suggest an employment relationship compared to an educational and/or training relationship.
In summary, the following seven criteria must be considered when conducting the ‘primary beneficiary test”:
- The intern and the employer both must 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 internship must provide 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 internship must be tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
- The internship must accommodate the intern’s academic commitments by corresponding to the academic calendar.
- The internship’s duration must be limited to the period in which the internship provides the intern with beneficial learning.
- The intern’s work must complement, rather than displace, the work of paid employees while providing significant educational benefits to the intern.
- The intern and the employer must both understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
While these criteria are directed toward for-profit entities, the U.S. Department of Labor Wage and Hour Division notes that there is an exception to the rule for individuals who volunteer their time, freely and without anticipation of compensation, for religious, charitable, civic, or humanitarian purposes to non-profit organizations. Further, unpaid internships for public sector and non-profit charitable organizations, where the intern or student volunteers without expectation of compensation, are generally permissible.
Unlike in the past, where the previous six-factor test was adhered to tightly by courts, the new “primary beneficiary test” has been described as a more flexible test where no individual factor is conclusive. Subsequently, determining whether an intern or student is actually an employee under the Fair Labor Standards Act (FLSA) ultimately depends on the specific circumstances of each case.
Employers who are a for-profit and are considering utilizing an intern or student this summer should consider the seven criteria listed above when designing their internship program to ensure that they comply with the Fair Labor Standards Act (FLSA) and the new “primary beneficiary test”.
For additional information on recommended guidelines for interns, please contact New Focus HR, LLC at www.NewFocushHR.com.
Written By: Patrick McKenna, SHRM-CP
Source: U.S. Department of Labor Wage and Hour Division, Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act.