Summer is here, and for many businesses that means college students are reaching out to them in search of summer internships. Whether those internships should be paid or unpaid is a highly-debated topic. It is often argued that unpaid internships offer young people value in opportunities to learn about their chosen industry, and while it’s not completely illegal for employers to have unpaid interns, there are several potential misclassification risks involved if not approached correctly.
In January of this year, the US Department of Labor (DOL) released a fact sheet to provide employers with information that can help them determine whether or not their interns are entitled to minimum wages and overtime pay under the Fair Labor Standards Act (FLSA).
The DOL replaced their former six-factor test with a new, overhauled “primary beneficiary” test, which uses seven factors to determine whether the employer or the intern is the primary beneficiary of the relationship. The previous test required all six factors to be met for a person to be classified as an unpaid intern rather than an employee, while courts have described the new guidelines as a “flexible test,” with no single factor being determinative and all factors as a whole being considered on a case-by-case basis.
To make the determination on whether or not an intern qualifies for an unpaid status the new test considers “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 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 internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
- The internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
- The internship duration is limited to the period in which the internship provides the intern with beneficial learning.
- The intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
- The intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
If an analysis of the above factors determines that the intern meets the qualifications of an employee, that intern will be entitled to both minimum wage and overtime pay, under the FLSA. However, employers should not wait until a court steps in, but should instead take the necessary steps to determine the correct classification of interns using the factors provided by the DOL. If any uncertainty remains, the safest approach is to make it a policy to pay summer interns the minimum wage at the very least.
Emplicity understands that HR
Outsourcing should be simple and meaningful. As a Professional Employer Organization (PEO), we strive to be a great partner in supporting your business. If you would like to request more information on how we can assist your needs, please reach out to us at 877-476-2339. We are located in California – Orange County, Los Angeles, and the greater Sacramento and San Francisco area.
NOTICE: Emplicity provides HR advice and recommendations. Information provided by Emplicity is not intended as a substitute for employment law counsel. At no time will Emplicity have the authority or right to make decisions on behalf of their clients.