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As the days get longer and the summer season beckons, many employers are preparing their summer internship programs.  An internship is a great opportunity for a college student or budding professional to gain hands-on experience, and at the same time provides an employer with an enthusiastic worker who can bring a fresh perspective to the company. For both parties, the internship offers a test period to try out the working relationship.  However, “for-profit” employers need to be aware that the Department of Labor (“DOL”) has promulgated new internship program guidelines to help employers evaluate whether a summer intern qualifies as an “unpaid intern” or an “employee” under the Fair Labor Standards Act (“FLSA”).[1]   Importantly, an intern who qualifies as an employee is entitled to both minimum wage and overtime pay.

On January 5, 2018, the DOL clarified that moving forward it will use the “primary beneficiary” test, favored by at least four federal appellate courts, to determine whether an intern is an employee under the FLSA.  See DOL Fact Sheet #71.  The test analyzes the “economic reality” of the intern-employer relationship to determine which party is the “primary beneficiary” of the relationship.  The test uses the following seven factors:

  1. The extent to which an 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.
  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 complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. 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.

This seven-factor test makes clear that an unpaid internship must be tied to an intern’s education and that the summer intern cannot perform substantial work for the employer.  In short, if you do not want to pay an intern, the intern must be the primary beneficiary of the relationship.

Contact the attorneys at Hirst Applegate if you have questions about your company’s internship program.  Let us help you evaluate whether your internship program complies with the FLSA and any related state laws.

[1] The FLSA exempts certain people who volunteer for a state or local government agency or who volunteer for humanitarian purposes for non-profit food banks.  In addition, unpaid internships for the public sector and non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible.  See DOL Fact Sheet #71.