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With very few exceptions, all workers at your place of business must be paid at least minimum wage for all hours worked. But what about interns, who work at companies without pay as part of a training or educational program?

On January 5, 2018, the United States Department of Labor (DOL) issued a new standard for determining whether an individual could be classified as an unpaid intern. Prior to January, the DOL used a 6-part test for analyzing whether individuals could be treated as interns and denied compensation for their work. That 6-part test has given way to the “primary beneficiary” test, which is designed to examine whether the intern or the employer is the primary beneficiary of the relationship.

The DOL, and courts in several recent cases, now look at seven factors to scrutinize the “economic reality” of the intern-employer relationship.

  1. The extent to which 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.
  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.

Courts describe the “primary beneficiary test” as a flexible test. No single factor is determinative, and whether an intern is an employee necessarily depends on the unique circumstances of each case. If analysis of these circumstances reveals that an intern is actually an employee, then he or she is entitled to minimum wage and overtime pay.

Employers considering the use of unpaid interns must carefully evaluate the relationship, taking into account the new 7-factor test outlined above to determine who will be the “primary beneficiary” of the intern-employer relationship. If the conclusion is that the employer benefits most from the arrangement – because, for example, the intern is doing routine work that the employer ordinarily would have had to pay an employee to do – then the individual should be treated as an employee and paid minimum wage and overtime.

The analysis discussed above is very fact-specific and can be tricky to implement. If you use interns, or are considering hiring interns, please contact an attorney at Schneiders & Associates for assistance in evaluating whether that individual is truly an intern, or rather should be classified as an employee.