When Are Unpaid Internships Allowed Under the FLSA? DOL Revises Test

For-profit organizations have new guidelines to follow when determining whether they must pay interns. On January 5, 2018, the U.S. Department of Labor (DOL) issued a new test for determining whether interns must be paid or may be unpaid under the federal Fair Labor Standards Act (FLSA). Employers with interns should analyze their internship programs under the new test to ensure compliance with the FLSA.

The FLSA and Interns

The FLSA requires employers to pay at least minimum wage and overtime compensation to non-exempt employees. If an intern is considered an employee, then the intern is subject to the FLSA and must receive at least minimum wage and time and a half overtime compensation. If an intern is not considered an employee, the intern is not subject to the FLSA and is not entitled to minimum wage and overtime compensation. In other words, interns who are considered employees must be paid, whereas interns who are not considered employees may be unpaid.

Since 2010, the DOL used a six-factor test to determine whether an intern was an employee. Only if an intern satisfied all six factors could the intern could be unpaid. This test was rigidly applied by the DOL and led to significant lawsuits challenging employer classification of unpaid interns.

The New Intern Test

On January 5, the DOL replaced the six-factor test with the “primary beneficiary” test. This test requires a determination of whether the employer or the intern is the primary beneficiary of the relationship. If the employer is the primary beneficiary, the intern must be paid, but if the intern is the primary beneficiary, the intern may be unpaid.

Seven factors are relevant:

1. The extent to which the intern and the employer clearly understand there is no expectation of compensation. (Any promise of compensation suggests 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 the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The primary beneficiary test is more flexible than the six-factor test because, under the primary beneficiary test, no single factor is dispositive. Instead, whether the intern must be paid depends on the totality of the circumstances of each situation. A copy of the DOL’s new fact sheet is available on the DOL’s website.

The primary beneficiary test applies to interns of for-profit employers. According to the DOL’s fact sheet, generally interns of public sector and non-profit employers may be unpaid as long as the intern volunteers without expectation of compensation.

For-profit employers with interns should analyze their internship programs to determine whether they comply with the FLSA.