With another summer approaching, you may be considering hiring an unpaid intern for the summer months. The process for doing so seems cut and dry. However, litigation around unpaid internships has recently increased due to several lawsuits where interns sued their former employers alleging violations of state and federal wage and hour laws by failing to pay interns for work that should have been performed by paid employees.

To determine whether your intern is entitled to minimum wage or overtime under state or federal law, the U.S. Department of Labor (DOL) has proffered a seven-factor “primary beneficiary test.”

Under the “primary beneficiary test,” the DOL and courts examine the “economic reality” of the intern-employer relationship to see which party is the “primary beneficiary” of the relationship.

The factors the DOL considers when classifying an intern vs. an employee are the following:

1. 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 intern is an employee—and vice versa;
2. The extent to which the internship provides training that would be like that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions;
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

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.

Courts have described the “primary beneficiary test” as flexible, with no single factor determinative. If all these factors are present, then the position is in fact an unpaid internship. However, many states have additional factors they consider determining whether a worker is an intern or an employee under state wage and hour laws. So be sure to also review your state’s factors.

If analysis of the circumstances reveals that an intern or student is an employee, then he or she is entitled to both minimum wage and overtime pay under the Fair Labor Standards Act (FLSA) and state law corollaries. On the other hand, if the analysis confirms that the intern or student is not an employee, then he or she is not entitled to either minimum wage or overtime pay under the FLSA.

Also keep in mind that the FLSA exempts certain people who volunteer to perform services for a state or local government agency or who volunteer for humanitarian purposes for non-profit food banks. The DOL also recognizes an exception for individuals who volunteer their time, freely and without anticipation of compensation, for religious, charitable, civic, or humanitarian purposes to non-profit organizations. Unpaid internships for public sector and non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible.

It is strongly recommended that employers review their internship program to see if it meets the primary beneficiary test factors highlighted above and consider the state specific factors that may be applicable to ensure that your unpaid internship qualifies as an unpaid position.

If you have questions or need assistance evaluating your internship program, please contact Doug Taylor at (703) 525-4000 or rdougtaylor@beankinney.com.

This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the authors and are not necessarily the views of any client.