For many employers, summer means interns. But for human resource professionals, this means staying in compliance, whether the interns are paid or unpaid. While the Department of Labor (DOL) has issued a fact sheet on internships, the document does not offer detailed guidance on how to stay in compliance. The test itself, however, does imply what steps an employer may take to do so. A few states (including California and New York) also have laws affecting interns, so an employer’s internship program may need to address this as well. What follow are some questions and answers regarding internships that address these concerns.
Question One: Must Interns Be Paid?
Although the answer is no, the safe bet is to pay interns at least the minimum wage (thereby making them employees) unless the employer has developed a program that specifically addresses the seven-part primary beneficiary test established by the DOL. Under the test, interns must be the primary beneficiaries of their labor, not the for-profit business for which they work. (The DOL fact sheet does recognize the difference between volunteers who donate their labor to nonprofits and interns who work at for-profit businesses.)
Question Two: What Is the Primary Beneficiary Test?
In response to lawsuits concerning unpaid internships that resulted in the creation of different judgments by courts across the country, the federal government adopted court rulings to promulgate a new, seven-factor test in 2018. As the DOL put it:
Courts have used the “primary beneficiary test” to determine whether an intern or student is, in fact, an employee under the FLSA. In short, this test allows courts to examine the “economic reality” of the intern-employer relationship to determine which party is the “primary beneficiary” of the relationship. Courts have identified the following seven factors as part of the test:
- 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.
One important aspect of the list is that an unpaid internship is supposed to offer training that is formally linked to academics. The primary beneficiary of the internship must be the intern, who must learn new skills of educational benefit. If an intern is just doing office work for free, without any academic benefit, the unpaid internship does not pass the test and is illegal.
One of the cases instrumental in creating the test is Glatt v. Fox Searchlight Pictures Inc., in which the plaintiffs claimed that the movie studio violated the Fair Labor Standards Act (FLSA) by not paying them for their labor. Glatt, for example, contended that he “worked from approximately 9:00 a.m. to 7:00 p.m. five days a week. As an accounting intern, [his] responsibilities included copying, scanning, and filing documents; tracking purchase orders; transporting paperwork and items to and from the Black Swan set; maintaining employee personnel files; and answering questions about the accounting department.” After reviewing such evidence, the appellate court observed that “employers can…exploit unpaid interns by using their free labor without providing them with an appreciable benefit in education or experience.” The court also held that “we agree with defendants that the proper question is whether the intern or the employer is the primary beneficiary of the relationship.”
For employers, the important thing to remember about the primary beneficiary test is that if an unpaid intern is doing the work of a regular employee and not receiving some form of educational benefit from the work, the internship is illegal.
Question Three: What Makes an Unpaid Internship Legal?
The best way to comply with the primary beneficiary test is to create a program that specifically addresses the seven factors. Although the test is flexible and so that it may be applied to many different workplace settings, it also lays out some clear requirements. The first requirement is that there be no misunderstanding between the intern and the employer regarding compensation, including any implied promises. One way to address this item on the test is to have the intern sign a letter of understanding that states that the internship offers no compensation and no promise beyond the terms of the letter (for example, no promise of future employment).
The terms of the letter may also include a connection to a formal educational experience as evidence of how the intern is to benefit from the internship. For example, the internship may garner the intern some academic credit or other educational benefit. As part of a legal unpaid internship program, the employer may work with local colleges and universities to provide internships that align with academic calendars and that provide training for college credit. This addresses items two, three, and four of the seven-factor test.
This sort of arrangement takes time. April or May is not the time to slap such a program together. Unpaid internships for college credit will need to be established well in advance of implementation and provide students plenty of time to apply and make arrangements if accepted. Indeed, to attract the type of student who does not procrastinate, applications for summer internships, for example, could be taken in the preceding fall.
Finally, the last items on the test address the workplace environment for the intern. Unlike Glatt’s experience, the intern’s job duties should include close supervision of tasks that are not simply what any other worker could do. Instead, the internship program should include training and education, so that the intern is the primary beneficiary of the relationship. The intern should learn new skills and get regular feedback from a supervisor, and the intern’s work should not displace the work a regular employee. In short, unpaid interns should be treated like trainees, not regular employees, and they should receive some identifiable educational benefit from the internship.
For employers, internships can provide some low-cost labor during the summer. Paid interns are employees and need to be paid in compliance with the FLSA and applicable state laws. While it is also legal to have unpaid interns, their employment situation needs to pass the primary beneficiary test.