Do Employers Have to Pay Interns Overtime or Minimum Wage?

With summer approaching, employers are hearing from college students looking for internships.  In the past, the Department of Labor (“DOL”) made it almost impossible for “for profit” employers to establish unpaid internship programs that did not violate the Fair Labor Standards Act (“FLSA”).  The DOL used a rigid, six-factor test that prohibited employers from gaining an immediate advantage from the intern’s activities, which severely limited the intern’s usefulness.

This past January, the DOL discarded its six-factor test and adopted new standards coming out of the federal appellate courts. The new test, referred to as the “primary beneficiary” test, recognizes that interns get valuable nonmonetary benefits from the internship relationship.  The new test includes the following seven factors:

1. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
2. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
3. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
4. 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.
5. 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.

Unlike the prior DOL test, which required that all six factors be met, the primary beneficiary test is a flexible one where all of the factors are weighed together.  The sole consideration is whether the intern is the primary beneficiary of the relationship. 

Employers who are considering using unpaid interns should consider the following pointers:

1. Revise all intern-related documentation, including handbooks and recruiting materials, to use the language in the new test.
2. Both the employer and intern should sign an agreement that incorporates the language of the new test.
3. Ensure that the intern’s educational institution is overseeing the internship and that the work is primarily academic in nature.  Work with the college or university to get educational credit for the internship work, where possible.
4. Do not assign much “grunt work.”  Focus on tailoring tasks to academic goals.
5. Set the duration of the internship before it begins.
6. Focus on training the intern with transferable skills, not just those unique to your business.

Of course, if an employer finds the new test to be too constraining, it can always pay its interns.

Jeff Wilson is a Pender & Coward attorney focusing his practice on labor and employment law matters.