A new test for determining if your intern should be a paid intern

There are new rules for determining whether an internship is paid or not.

The US Department of Labor is in the process of becoming a “friendlier” place. One such change has come in the form of a new test to determine if an intern can be an unpaid intern or if they should be paid.

No longer six factors

In 2011 I wrote a post called Unpaid Internships Are Possible, If You Jump Through All the Hoops. In this post, I talked about the six-factor test that made it difficult for any company to employ a student as an unpaid intern. It was possible, but not easy. On January 5, 2018, the USDOL instituted new guidance for “for profit” companies to use students as interns.

Primary Beneficiary

The new test is called the primary beneficiary test. It has seven steps which must be met to have an unpaid intern. In Fact Sheet #71 the DOL lists these factors:

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—and vice versa.
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.

The guidance says 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 described the “primary beneficiary test” as a flexible test, and no single factor is determinative. Accordingly, whether an intern or student is an employee under the FLSA necessarily depends on the unique circumstances of each case, unlike the six-factor test under which every factor had to be met.

Not-for-profit guidance

The USDOL guidance also made it clear that having an intern in a “not-for-profit” organization only requires that the student has volunteered for the position with no expectation of being paid. The guidance says “Unpaid internships for public sector and non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible.”

Paying interns

My preference has been to recommend to clients that they pay interns. Yeah, I know they can be cheap labor, but is one of the lessons you want to be teaching is how cheap you are? I believe if you treat them right, make them an employee, you may have the good fortune to keep them as an employee. Consider this part of your recruitment process. It will also make sure you are not making any FLSA violations.