Plan Ahead Now For Summer Interns So You Don’t Pay Later. New Rules For Unpaid Interns!

Although there is snow on the ground, savvy employers as well as students are already planning out summer internship programs. Traditionally, the intern program has been a mutually beneficial arrangement whereby an employer utilizes the services of an unpaid intern to accomplish certain tasks and the student intern is exposed to certain aspects of a job that entail learning and on the job experience. The issue that comes up most often however involves whether or not those interns are truly unpaid interns or magically transformed into employees, eligible for minimum wage and overtime pursuant to Fair Labor Standards Act (“FLSA”).

The FLSA requires employers to pay at least the minimum wage and overtime compensation to non-exempt employees. If an intern is considered an employee, that individual must be paid at least the minimum wage plus overtime at time and a half. If the intern is not considered an employee, the intern is not subject to the FLSA and is not entitled to such wages. In other words, interns who are considered employees must be paid whereas interns who are not considered employees may be unpaid.

Since 2010, the U.S. Department of Labor (“DOL”) has utilized a Six Factor test to determine whether an intern was an employee. Only if the intern satisfied all six factors could the intern be unpaid. On January 5, 2018, the DOL unveiled a new intern test, (“Primary Beneficiary”) which allows for much more flexibility and focuses on whether the employer of the intern is the primary beneficiary of the relationship. If the employer is the primary beneficiary, the intern must be paid, but if the intern is the primary beneficiary, the intern may be unpaid.

Under the Primary Beneficiary analysis, seven factors are relevant and all must be weighed equally and non-exclusively. These factors are:

1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. (Any promise of compensation suggests the intern is an employee);
2. 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;
3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit;
4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar;
5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning;
6. The extent to which the intern’s work compliments, rather than displaces, the work of paid employees while providing significant educational benefits to the intern; and
7. The extent to which the intern and the employer understand the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The new Primary Beneficiary test certainly relaxes the criteria for establishing an unpaid internship under the FLSA and is therefore good news for employers wishing to establish such programs. It is also a good opportunity for employers to revisit how they structure and draft the terms of their internship programs to ensure compliance with the new guidelines and avoid unnecessary FLSA risks.

With over 34 years’ experience in advising employers and employees on workplace issues, let Boznos Law work with you to ensure you are ready to meet the challenges posed by the changes to the employment laws. Call Bill Boznos today at (630) 375-1958 or contact us at www.boznoslawoffice.com/contact-us through our website.