It is not unusual for for-profit employers to bring on interns to work at their company. In not too distant past years, in general, many employers assumed the intern would not be paid. They worked for the valuable experience. However during the Obama administration, due to actions by the Dept. of Labor, employers needed to be concerned as to whether they were required to pay the intern like an employee – Is the intern subject to the FLSA? If an intern is not an employee under the FLSA, no compensation is required.
The DOL has recently “clarified” the factors it will consider in determining whether an intern working for a for-profit employer is in fact an employee under the FLSA. Following several court rulings, the DOL recently advised that it will dispose of the agency’s previous six-factor test for unpaid interns and instead utilize the “primary beneficiary” test used by courts to determine whether interns are employees under the FLSA.
Under this test, courts examine the “economic reality” of the intern-employer relationship to determine which party is the “primary beneficiary” of the relationship. The “primary beneficiary” test considers the following seven factors:
- 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—and vice versa.
- 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.
- The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
- The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
- The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
- 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.
- 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.
While the DOL appears to imply that this new criteria will make it easier for employers to know whether their intern is subject to the FLSA, it is emphasized that whether an intern is an employee under the FLSA is determined on a case-by-case basis based on the unique circumstances of each case. The DOL and the courts may also consider other relevant evidence, beyond the above factors, in making a determination of employee status.
Employers should also keep in mind that their State and local labor laws may supersede Federal Law making this new DOL ruling moot. As always, if there is any doubt, employers should consult with HR/Employment professionals before deciding if and how an intern should be compensated.
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