The summer months are approaching and, with them, the prospect of many employers offering unpaid internships to high school and college students. If your organization is considering such a move, tread carefully. Under the Fair Labor Standards Act (FLSA), if an intern is determined to actually be an employee, the employer must pay them at least minimum wage, plus overtime to the extent applicable. Fortunately, new rules introduced earlier this year make it a little easier to establish unpaid intern status.

How it used to be

Previously, an arrangement had to pass a six-factor U.S. Department of Labor (DOL) test to qualify as an unpaid internship:

1. The work must have been performed as an extension of a trade studied by the intern or be akin to their school training.
2. The work must have been for the intern’s benefit.
3. The intern could not have replaced regular employees but rather must have worked under their close observation.
4. The employer must have derived no immediate advantage from the internship; the internship must have been primarily an educational experience for the intern.
5. The employer must not have promised the intern employment after the internship.
6. The employer and the intern must have mutually understood that the internship was unpaid.

Employers had to meet all six of these factors. But courts found the rules problematic — especially the ‘no immediate advantage’ factor.

Today’s seven-factor test

In January 2018, the DOL introduced a new seven-factor test based largely on various U.S. federal appeals court decisions in FLSA cases. The new test seeks to establish the ‘economic reality’ of the employer-intern relationship and identify which party is the ‘primary beneficiary.’ As expressed by the DOL, the factors assess the extent to which:

1. The intern and employer clearly understand there is no expectation of compensation; any promise of compensation, express or implied, suggests that the intern is an employee (and vice versa).
2. The internship provides training similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
3. The internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
4. The internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
5. The internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
6. The intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
7. The intern and the employer understand that the internship is conducted without entitlement to a paid job at the internship’s conclusion.

In short, the intern must be the primary beneficiary of the relationship. Significantly, unlike the previous six-factor test, this one is flexible; no single factor is determinative.

Totally worth it

For employers, internships may seem like more trouble than they are worth. However, these arrangements can greatly benefit the students involved, provide energetic help with short-term projects, and improve your reputation in the employment market. Please contact us for more information.