Summer is often the season when employers consider hiring interns, but there is never a wrong time to brush up on the wage-and-hour laws surrounding paid and unpaid interns.
Startup companies may view an internship program as an opportunity to hire students and develop unpaid internship programs. Unfortunately, there are a lot of misconceptions about unpaid interns. The most prevalent misconception is that labeling a student worker as an "intern" means that the individual may legally work without compensation. Generally, however, unless certain requirements are met, a company should consider students to be regular employees and subject to minimum wage, overtime, meal and/or rest period laws, and any other wage-and-hour requirements that govern the jurisdiction. Thus, not treating students as regular employees could subject an employer to potential liability for unpaid wages, unpaid employment-related taxes, attorneys' fees, and various penalties, such as state-specific penalties.
Of course, it may be possible to create a lawful unpaid internship program. The U.S. Department of Labor (DOL) provides a fact sheet to help determine whether an intern is an employee under the Fair Labor Standards Act (FLSA). The fact sheet highlights the primary beneficiary test, which includes seven factors that allow courts to examine the economic reality of the intern-employer relationship to determine which party is the primary beneficiary of the relationship.
Below is a summary of the seven factors utilized:
- The intern and the employer clearly understand that there is no expectation of compensation.
- The internship is similar to training that would be given in an educational environment.
- The internship is tied to the intern's formal education program.
- The internship accommodates the intern's academic commitments by corresponding to the academic calendar.
- The internship's duration is limited to the period in which the internship provides the intern with beneficial learning.
- The intern's work complements the work of paid employees while providing significant educational benefits to the intern.
- The intern is not necessarily entitled to a paid job at the conclusion of the internship.
The thrust of these unpaid internship rules is that the relationship should solely benefit the intern and provide no immediate benefit to the employer. Thus, if the interns are engaged in the operations of the employer or are performing productive work (for example, basic coding, quality assurance, filing, other clerical work, or customer assistance), the interns will be subject to the minimum wage and overtime requirements because the employer benefits from the interns' work. While FLSA applies nationwide, states may have additional requirements to consider when determining whether an intern should be treated as an employee.
Companies considering hiring interns should contact a knowledgeable employment lawyer to ensure compliance with the various federal and state rules relating to interns.
Last Updated April 2024
