The lingering morning chill in the air (at least, here, in the Northeast) suggests that summer is not quite here, but as the daylight persists through the evening hours, businesses small and large are gearing up for yet another summer – intern – season.
In anticipation of the arrival of these ambitious and eager workers, companies’ human resources professionals and stakeholders are asking the age-old questions:
Should these interns be classified as “employees” of the company?
Must they be compensated?
Isn’t knowledge and real-world experience the appropriate reward (and maybe some academic credit)?
Is this a wage and hour violation?
The answer to this question is that, it depends, which is a dependably frustrating response from a management-side employment lawyer.
The legal and regulatory framework to answer this question has not really changed since 2018 when the U.S. Department of Labor (“DOL”) issued Field Assistance Bulletin No. 2018-2, in which the DOL adopted a “primary beneficiary” test that had been relied on at that time by several federal circuit courts to determine whether unpaid interns (at for-profit businesses) are “employees” as defined by the Fair Labor Standards Act (“FLSA”). Even though the legal framework remains the same, businesses must continue to diligently review and apply this framework to each unique internship position so that they can determine the appropriate classification.
In short, the DOL’s “primary beneficiary” test focuses on the “economic reality” of the relationship between the intern and putative employer to determine the primary beneficiary of the relationship, i.e., does the intern or business get the benefit of the bargain. If the intern is the primary beneficiary, then they likely are not covered by the FLSA, meaning they need not be compensated. If, however, the business is the primary beneficiary, then it likely must treat the interns in question as “employees,” which means all worktime must be accurately and contemporaneously recorded and paid.
The DOL’s “primary beneficiary” test includes the following seven factors:
- The extent to which the intern and the business clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee.
- The extent to which the internship provides training that would be like an educational environment, including 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.
The DOL maintains a Fact Sheet here explaining that no single factor of this test is dispositive, and that “employee” status depends on the unique circumstances of each intern position in question.
The DOL has asserted that the primary beneficiary test gives businesses greater flexibility to engage unpaid interns, but the practical reality is that businesses must first determine the purposes of the internship.
There is a practical, common-sense aspect of this analysis that should not be lost in the seven factors. For example, if a stakeholder intends to utilize an intern for an open role for a few months that had been previously occupied by an employee, there’s a good chance the intern will be performing that same work of the employee and should therefore be classified and paid as an employee.
For businesses that want to engage unpaid interns, consider the following guidelines:
- First, determine the legal framework in the jurisdiction in which the intern is being engaged. Depending on the state or locality there may be a modified “primary beneficiary” test, or some other distinct test or requirement to qualify as a bona fide unpaid intern.
- Craft the business’ internship program policies and practice guidelines so that the unpaid intern is the primary beneficiary of the relationship.
- Consider the form and amount of any compensation, e.g., a stipend, that will be provided to the unpaid intern, as doing so may tilt the economic reality of the relationship in one direction, quite possibly that of employer-employee.
- Structure unpaid internship programs so that interns receive academic credit.
- Limit the amount of substantive work to be performed by the unpaid intern. The crux of the relationship should be educational and experiential. Think “shadowing” and not “showcasing.”
- Limit the duration and timing of internship programs so that they are consistent with semesters/breaks in the academic calendar.