paid vs unpaid interns
by justin heinrich
Your telephone rings. It’s your former college roommate, whose child is home from school for the summer and desperately wants to learn about your industry, because maybe your industry is coveted and hotly popular (e.g., Fashion? Media? AI?).
They are so desperate that they are even willing to work for you for free.
Sounds perfect, right? You have a backlog of paperwork that needs to be filed; your phone keeps ringing off the hook; and your current staff cannot keep up. It’s vacation season and you know that having an extra pair of hands will help you tremendously. It would be a win-win. Your friend’s child will get some real-world professional experience, and you will get some free labor.
✋🛑 Stop right there. It’s not so easy.
The federal government takes a very narrow view when it comes to whether an intern may legally be unpaid. It is the exception rather than the rule. If you misclassify an intern as “unpaid” when they should really be a paid employee, you could run afoul of the Fair Labor Standards Act (“FLSA”) and become subject to significant penalties.
To help guide businesses, the Department of Labor and courts use the following “primary beneficiary” test to determine whether an intern may be unpaid or should instead be classified as a paid employee. The crux of the test is to establish who receives more of the benefit from the internship: the business or the intern. If it’s the intern, then it is possible that the intern can be unpaid. But if the business benefits more, then the intern is probably an employee.
👆 Not one of these factors is determinative. The answer will be decided case-by-case, based on the unique circumstances of each situation.
1. How much the intern clearly understands that there will be no compensation.
If there is a promise of compensation (express or implied), then that leans toward a finding that the intern is an employee.
2. How much the internship experience provides training similar to what would be given by an educational institution, such as clinical and other hands-on training.
If the intern is doing “grunt” work (e.g., clerical or errand running), they are more likely to be an employee.
3. How much the internship is tied to the intern’s formal education, for example, through integrated coursework or academic credit.
Does the intern have a class that complements the internship? Is there regular communication between the business and the academic institution regarding the intern’s performance? If so, that tends to favor a finding that the intern may be unpaid.
4. How much the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
Is the internship built around the intern’s class schedule?
5. How much the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
Is the internship designed to end when the intern’s education ends?
6. How much the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
If you did not bring on an intern, would you hire another employee to do the same work that the intern performed? If so, that may suggest the intern is an employee.
7. How much the intern and the employer understand that the internship is conducted without entitlement to a paid position at the conclusion of the internship.
If there is a promise of a paid position, that leans towards a finding the intern is an employee, especially if the duties of the paid position are similar to what the intern had been performing.
⬆️ If the above test determines that the intern is an employee, then the intern is covered by the FLSA and all of its requirements, including being paid at least minimum wage and overtime. If you have any doubt, then it pays to err on the side of caution and treat the interns like employees.
In addition, individual states may have their own tests or other rules governing interns. You will want to make sure you are not only compliant with federal law, but also with applicable state and local regulations.
If you determine that your interns may properly be unpaid, it’s a good idea to document how you came to that conclusion. It’s also a good idea to regularly revisit your internship program to ensure the program remains compliant.
Please remember that if your interns are employees, there are considerations other than your pay practices. If they are employees, they should necessarily be covered by worker’s compensation benefits. But you may also have to consider whether the interns are eligible for things like health benefits, sick or vacation leave, holiday pay, or retirement contributions. To ensure compliance, it is important to review applicable benefit plan documents, company policies, and federal, state and local laws.
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