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Summer Interns: Paid or Unpaid?

Written by: Don Benson, Esq.

Every summer, many employers take on “interns” and ask whether the intern must be paid. If interns, trainees and students are “employees” of a “for-profit” employer under the Fair Labor Standards Act, then they must be paid minimum wage and overtime.

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:

1. Whether 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.

2. Whether the internship provides training that would be similar to training in an educational environment, including the clinical and other hands-on training provided by educational institutions.

3. Whether the internship is tied to a formal education program by integrated coursework or the receipt of academic credit.

4. Whether the internship accommodates the intern’s academic commitments within the academic calendar.

5. Whether the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.

6. Whether the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.

7. Whether the internship entitles the intern to a paid job at the conclusion of the internship.

This 7-factor “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. U.S. DOL Fact Sheet 

Practical Suggestions.

Payment of a stipend, but not wages, to an intern does not create an employment relationship so long as the stipend does not exceed the reasonable “approximation of the expenses incurred.” The internship should be of a fixed duration, established prior to the outset of the internship. Further, unpaid internships generally should not be used by the employer as a trial period for individuals seeking employment at the conclusion of the internship period.

In general, the more an internship program is structured to resemble a classroom or academic experience as opposed to the employer’s actual operations, the more likely the internship will be viewed as an extension of the individual’s educational experience (this often occurs where a college or university exercises oversight over the internship program and provides educational credit). The more the internship provides the individual with skills that can be used in multiple employment settings, as opposed to skills particular to one employer’s operation, the more likely the intern would be viewed as receiving training. Under these circumstances the intern does not perform the routine work of the business on a regular and recurring basis, and the business is not dependent upon the work of the intern. On the other hand, if the interns are engaged in the operations of the employer or are performing productive work (for example, filing, performing other clerical work, or assisting customers) on a regular and recurring basis, then the fact that they may be receiving some benefits in the form of a new skill or improved work habits will not exclude them from the FLSA’s minimum wage and overtime requirements because the employer benefits from the interns’ work.

Employers with interns in multiple states should also confirm whether the applicable state law might have different rules on whether an intern must be treated as an employee for minimum wage, overtime and meal and rest period requirements