Many companies hire students as interns. Many employers take for granted that interns do not have to be paid or given benefits. Interns learn while on the job and everyone’s happy, right? Well, hold on a minute. Just last month, the DOL published Field Assistance Bulletin No. 2018-2 (not exactly an attention-grabbing name, I know) in which it discusses the new method it will use to determine if and when interns are really employees entitled to minimum wage and overtime pay under the Fair Labor Standards Act. Now, don’t panic. There are circumstances under which you can have unpaid interns. Let’s look into this more and see if we can’t clear up a few things.
OK, what’s the secret formula? In a nutshell, the DOL uses a “primary beneficiary test”. In other words, who is primarily benefiting from the intern being there and doing whatever it is s/he does? If it’s the intern then you’re fine and you don’t have to pay him or her. If your company is benefiting more than the intern, then you really have a misclassfied employee and you need to be paying that person. The FLSA is very clear that if someone is working for you, you must pay them. It’s illegal if you don’t. The DOL, the courts and many workers get rather testy with companies who ignore that principle. Can you blame them, really? If you were doing work and thereby providing someone else a benefit, wouldn’t you generally expect to be paid?
Now, you may be thinking, “Well, the intern is benefiting and so is the company, so what’s the problem? Besides, how do I figure out whether –or make a good argument that– the intern is the primary beneficiary?” The DOL does provide some help here in its Field Assistance Bulletin. If you want to read the actual Bulletin, you can find it here. I’m assuming however that most if not all of you have a life and really don’t want to do that. In that case, let’s just look at the seven factors the DOL says it will use to determine whether and when interns are employees. Are you ready? Here they are:
- 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. Most of you can probably meet this criterion without too much effort. Don’t get excited though. The DOL is easing you in, so let’s look at the other six factors.
- 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. This is where they raise the bar a bit. What the DOL is really saying here is that you can’t treat the intern the way you would treat a new employee, where you give either no training or very minimal training to bring the person up to speed. There needs to be more. For example, when I was in law school I worked at an Elder Law clinic. We were supervised by a licensed attorney at all times, they walked us through most things, and there were seminars each week. The DOL is thinking along these lines.
- The internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit. This point expands a bit on the one above. The more you appear to be working with the school that the intern is currently attending, the more that you tailor whatever your intern is doing to what s/he is learning in school the more likely the person can be an unpaid intern.
- The internship accommodates the intern’s academic commitments by corresponding to the academic calendar. In other words, don’t have the intern working for you during his/her school breaks, and make sure that his/her schedule does not conflict with classes or exams. This factor should be relatively easy for you to meet. If you cannot meet it then hire a part-time minimum wage employee from the outset.
- The internship’s duration is limited to the period in which the internship provides the intern with beneficial learning. Once you get to the point where the intern would be basically functioning as an employee, the internship is probably not providing him or her with beneficial learning. At that point you need to either end the internship or start paying the intern.
- The intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern. This is another way of saying that you can’t hire an unpaid intern to do work one would normally and perhaps at one point did hire someone else to do. For example, if you have a backlog of filing and clerical work that you just can’t get to and you don’t have it in the budget to hire someone part-time to help with it, you cannot decide to take on an unpaid intern to do that work.
- The intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship. In other words, you can’t get around paying your interns by calling the internship “on-the job training” and promising the possibility of a job after a certain number of weeks or months. The intern is there for a certain amount of time to learn what can be learned, in conjunction with his or her education at a college, graduate or vocational school.
Please note that no single factor will determine whether your interns need to be paid. As you can guess the specific circumstances in each case will control. Misclassifying an employee as an intern can carry the same consequences as misclassifying someone as an independent contractor, so please be guided accordingly. Hope this clears a few things up for you. See you next week!
Contents of this post are for educational/informational purposes only, are not legal advice, and do not create an attorney-client relationship. Consult with competent employment counsel in the state(s) in which you employ people with your specific questions.
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