For-profit employers occasionally bring on unpaid interns to work at the company. The question employers must ask is whether an unpaid intern is actually an employee and, therefore, entitled to be paid minimum wage and overtime pay under the federal Fair Labor Standards Act (FLSA). If an intern is not an employee under the FLSA, no compensation is required.
The U.S. Department of Labor (DOL) has clarified the factors it will consider in determining whether an intern working for a for-profit employer is in fact an employee under the FLSA. Following the lead of several courts, the DOL recently advised that it will scrap the agency’s previous six-factor test for unpaid interns and instead will utilize the “primary beneficiary” test used by courts to determine whether interns are employees under the FLSA. Under this test, courts examine the “economic reality” of the intern-employer relationship to determine which party is the “primary beneficiary” of the relationship.
The “primary beneficiary” test considers the following non-exhaustive seven (7) factors:
- 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.
The DOL emphasizes that none of the above factors is dispositive. Whether an intern is an employee under the FLSA is determined on a case-by-case basis based on the unique circumstances of each case. The DOL and the courts may also consider other relevant evidence, beyond the above factors, in making a determination of employee status. Also, remember that applicable state or local laws may provide interns with broader protections than under federal law. For-profit employers should consider the above factors and should consult with employment counsel before deciding not to pay an intern.