News & Insights

Minimum WageInternshipsHR Best PracticesFair Labor Standards ActHiring and On-boardingFebruary 20, 2018by Stanton LawTo Pay or Not to Pay (Interns): That is the Question

Companies hire interns for various reasons – often primarily to save money while at the same time giving an up-and-comer in the business world an opportunity to gain valuable experience. Some companies choose to hire unpaid interns to maximize the economic benefit. However, while hiring an unpaid intern may appear economically beneficial, it could prove costly if the individual should be classified as an employee, subject to the minimum wage and overtime requirements of the Fair Labor Standards Act (“FLSA”), and the company is subject to a U.S. Department of Labor (“DOL”) audit or to litigation. How do you know whether the individual your bringing on board is an intern or an employee?

In January 2018, the DOL adopted a more flexible, holistic “primary beneficiary” test to help make that determination, a test already adopted by four federal circuit courts of appeal, including the Eleventh Circuit in which Georgia sits. (We wrote about the Eleventh Circuit’s adoption of the “primary beneficiary” test on ITE in October 2015.) The “primary beneficiary” test is less rigid than the previous six-factor test used by the DOL in which each factor had to be satisfied in order for the individual to be excluded from coverage under the FLSA and qualify as an intern.

The “primary beneficiary” test examines the “economic reality” of the intern-employer relationship to determine which party is the “primary beneficiary” of the relationship using the following seven factors:

  • 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 individual is an employee rather than an intern.
  • 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.
  • 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 “primary beneficiary” test is more flexible than the previous test because no single factor is dispositive, and a determination is based on the specific circumstances of the situation. However, even though the new test is more flexible, this does not give employers free-reign with which to bring on individuals as unpaid interns.

The “primary beneficiary” test is a balancing test. Even if you think you’ve met the majority of the factors, the DOL’s Wage and Hour division or a court may weigh another factor more heavily, and you could be found liable under the FLSA. Ultimately, you should consider whether the savings of bringing on an unpaid intern is worth the risk and high cost of defending a DOL audit or litigation if you’re found to have misclassified an unpaid intern.

All potential DOL and overtime issues can be avoided simply by paying the intern $7.25 per hour (or the applicable minimum wage). If the intern is willing to work for free, they’ll be willing to work for minimum wage. If the intern is not providing at least $10 per hour worth of value to the company, then you should consider whether it’s really worth running an internship program.

If you have any questions about your current internship program or are interested in developing an internship program, give us a call. As always, we’re happy to help.