Summer is right around the corner and the interns will soon follow. Whether they come from high school, college, or those employees who might fall in the post-college category they all need to be treated equally under current federal law. An intern is roughly described as a student or trainee who works in a company in order to gain work experience or satisfy educational requirements. With all of the degree programs offered at colleges and universities around the country which have an internship component, it is fair to say that the hiring of interns will be a staple of corporate hiring policy for a long time to come. With the hiring of interns necessarily comes the question of whether or not a company has to pay them for an intern's services.
While state laws may vary on this matter the federal Fair Labor Standards Act (FLSA) has certain requirements that must be met by employers in order to avoid violating federal law. The issue is whether the intern is actually an employee and, as such, must be compensated under federal law or whether the intern is not an employee and thus exempt from the requirements of FLSA. To this end, the Department of Labor has come up with a series of factors called the "primary beneficiary test" to assist employers in how to properly categorize and manage employees. The primary beneficiary test has been applied by federal and state courts across the country in order to determine whether an intern or student is, in fact, to be a non-paid employee under FLSA. The test allows courts to examine the "economic reality" of the specific employer/intern relationship and, to that end, the following list of factors has been established as set forth verbatim in Fact Sheet 71 from the United States Department of Labor/Wage and Hour Division for unpaid internships:
1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation either express or implied suggestion 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 training provided by the educational institution itself.
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 and
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.
While no one of these factors is, in itself, conclusive a review of the decisions in this area reveals that the courts have balanced the seven considerations in each and every case in order to reach a determination of whether the requirements of federal law have been met. This test is designed to be flexible with no single factor as determinative. The failure to comply with these requirements particularly by companies that have many interns can result in substantial penalties if interns are being misclassified. Penalties are assessed as to each intern who is misclassified. For those employers who rely on unpaid internship programs, it is imperative that your company revise its guidelines, recruiting, and job description materials to reflect these new regulations.
Your company should also be mindful that these laws apply across the board-to both small businesses and large companies. To this end, the Katz Law Group can help your company review its intern policies in order to make sure that your company is fully compliant with federal law and, moreover, to make sure that your company maximizes the benefits that come with an effective unpaid intern hiring policy. Please feel free to call us at 508-480-8202.