On January 5, 2018, the U.S. Department of Labor’s Wage and Hour Division (WHD) created new guidance for determining whether a worker could be classified as an unpaid intern under the federal Fair Labor Standards Act (FLSA). The FLSA requires “for-profit” employers to pay employees for their work. Interns, however, may not be classified as “employees” under the FLSA and therefore are not entitled to compensation for their work. The new rules give employers more flexibility in establishing unpaid internships.
Under the previous six-factor test, an intern was considered an employee entitled to compensation unless all of the following factors were met:
- The internship, even though it included actual operation of the facilities of the employer, was similar to training that would be given in an educational environment;
- The internship experience was for the benefit of the intern;
- The intern did not displace regular employees, but worked under close supervision of existing staff;
- The employer that provided the training derived no immediate advantage from the activities of the intern, and on occasion its operations may actually have been impeded;
- The intern was not necessarily entitled to a job at the conclusion of the internship; and
- The employer and the intern understood that the intern was not entitled to wages for the time spent in the internship.
In its new guidance (Field Assistance Bulletin No. 2018-2), the WHD has adopted the “primary beneficiary test,” favored by several federal Circuit Courts, as the standard for determining whether interns at for-profit employers are employees under the FLSA. The primary beneficiary test examines the economic reality of the intern-employer relationship to determine which party is the primary beneficiary of the relationship. The following seven factors are used to make this determination:
- 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 after the internship.
What is different now is that not ALL of the seven factors must be met in order to determine employee status. According to the WHD, no single factor is decisive and the determination must be made on the unique circumstances of each case.
If analysis of these facts reveals that an intern is actually an employee, then he or she is entitled to both minimum wage and overtime pay under the FLSA. Conversely, if the analysis confirms that the intern or student is not an employee, then he or she is not entitled to either minimum wage or overtime pay under the FLSA.
What This Means for Employers
As a result of the new guidance, employers should review the status of any person working for them that they consider an “intern” and update their current internship programs to consider the WHD’s new rules.
The WHD’s Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act offers guidance to help employers correctly classify interns.