Many employers bring interns on board during the summer months to provide training and experience to people who are new to their industries, cultivate future employees, and build strong relationships with educational institutions or other partners. However, to avoid exposure to wage and hour litigation, internship programs must comply with federal and state law.
Employers with internship programs must either comply with the minimum wage and overtime pay requirements of the Fair Labor Standards Act (FLSA) or ensure that their interns are not “employees” under the FLSA. Private-sector, for-profit companies may be surprised, however, to learn that their unpaid internship program risks violating the FLSA, even if program candidates are willing to forego compensation.
Some FLSA Basics to Keep in Mind:
• The FLSA generally requires that all nonexempt employees be paid at least the federal minimum wage (currently $7.25 per hour) for all hours worked and overtime compensation at a rate of at least 1.5 times the employee’s regular rate of pay for all hours worked over 40 in any single workweek.
• Only nonemployees and employees who satisfy one of the FLSA’s exemptions may be excluded from the statute’s minimum wage and overtime pay protections.
• The FLSA does not include a specific exemption for interns. For that reason, companies with unpaid interns generally must be able to demonstrate that the interns are not employees under the FLSA. The FLSA’s very broad definition of “employee,” however, can make it difficult to justify an intern’s unpaid status.
• State and local law may impose different or additional requirements on unpaid internships, including an even broader definition of “employee.” If a conflict exists, companies must comply with the applicable federal, state, or local law that provides greater employee rights or protections.
Companies must understand that an intern’s actual experience in the internship program determines if they are an employee entitled to the FLSA’s protections. Neither the intern’s title nor their willingness to work without pay in exchange for experience is relevant to FLSA coverage.
The DOL’s Six-Part Test for Unpaid Intern Status:
The Department of Labor (DOL) has developed a six-part test to determine if an unpaid intern is covered by the FLSA’s definition of employee. According to the DOL, the intern is not an employee if all of the following are true:
• The program provides training that is similar to an academic or vocational environment or is affiliated with a college or university for academic credit.
• The intern is the primary beneficiary of the internship program (for example, by learning skills that can be used in multiple settings and by shadowing company employees).
• Regular employees are not displaced by interns.
• The program does not provide the company with any immediate advantage and in some cases the company’s operations may actually be impeded (for example, if the productivity of existing employees decreases because of time spent supervising and training interns).
• The interns are not entitled to a job with the company after completing the program.
• The interns understand and acknowledge that they are not entitled to pay or any other compensation for the internship.
Some federal courts defer to the DOL and apply the same test while others do not. Courts often consider whether the intern is the primary beneficiary and focus on the educational or vocational component of the program.
Best Practices for Unpaid Internship Programs:
• Schedule the program to correspond with the academic calendar, such as by semester or during summer break.
• Structure the program so that interns are the primary beneficiaries and they receive a valid educational experience. If offering academic credit, ensure that the program satisfies the college or university’s credit hours and substantive requirements (for example, the college may require a mid-point evaluation or an academic paper related to the internship). Consider developing a syllabus and specific assignments.
• Train interns on the company’s rules, policies, and expectations. Ensure that both interns and employees understand that certain workplace policies, such as anti-harassment, apply to interns.
• Ensure that employees involved in the program have sufficient time and resources to train, supervise, and provide feedback to interns. Have interns shadow company employees or work under close supervision.
• Do not replace regular employees (or fill empty positions) with interns. Do not rely on interns for company operations.
• Avoid interfering with the rights of existing employees (for example, consider how the program might affect the working conditions of employees covered by a collective bargaining agreement).
• Use a written agreement, signed by both a company representative and the intern, that includes the intern’s responsibilities and an acknowledgment that they are not entitled to compensation for participating in the program, are not an employee while participating in the program, and are not entitled to a position (or future internship) with the company after completing the program.
• Maintain accurate records throughout the program, including signed copies of the internship agreements and each intern’s hours of service, projects, and day-to-day activities.
• Schedule meetings at the conclusion of the program to provide each intern with a final evaluation and to solicit feedback on the program and the intern’s experience.
• Consider preparing a written guide or handbook that includes the program parameters, the responsibilities of interns, and the company’s obligations to interns. Review and update the guide regularly based on legal developments, changes in company practice, and feedback from prior interns.
In light of the wage and hour risks associated with unpaid interns, private companies may instead choose to treat interns as employees and pay them minimum wage and overtime compensation. Companies that offer an unpaid internship program should ensure that it satisfies any applicable federal, state, and local law, including the FLSA requirements discussed here.
For a complete checklist on how employers and their counsel can implement and maintain legally compliant internship programs visit Practical Law.