FLSA Rules on Hiring Interns

Entrepreneur magazine’s Small Business Encyclopedia defines an intern as “A person, usually a student, participating in a program of temporary, supervised work in a particular field in order to gain practical experience.”

While this “temporary, supervised work” is often unpaid, employers should not assume that all internships are unpaid. Per the Fair Labor Standards Act (FLSA), “for-profit” employers must compensate employees for their work. If the intern qualifies as an employee, then he or she must be paid for his or her work.

The U.S. Department of Labor (DOL) had a six-part test for distinguishing between employees and interns under the FLSA. However, several courts argued that the six-part approach was too rigid, as it required all six factors to be met. According to the National Federation of Independent Business (NFIB), the six-part test that prioritized the intern’s experience made it harder for small businesses to offer internship opportunities.

On Jan. 5, 2018, the DOL announced that four federal appellate courts had rejected its six-part test thus far. The agency said that going forward, it would follow the same “primary beneficiary” test used by the courts to determine whether interns are employees under the FLSA.

Ultimately, the “primary beneficiary” test seeks to determine who benefits the most from the relationship — the employer or the intern.

To answer this question, the courts examine seven factors:

1. Any promise of compensation, whether expressed or implied, suggests that the intern is an employee — and vice versa.
2. The extent to which the internship provides training that is similar to what would be delivered in an educational setting.
3. The extent to which the internship is tied to the intern’s studies or academic credit.
4. The extent to which the internship accommodates the intern’s academic schedule.
5. The extent to which the internship helps the intern with his or her current studies.
6. The extent to which the intern’s work complements, instead of displaces, the work of current paid staff.
7. The extent to which the employer and the intern understand that the internship won’t necessarily result in a paid job offer when it’s over.

The DOL has adopted this seven-part model, which has been heralded as a more flexible approach. Even though all seven factors are considered, they are considered holistically, and no case will hinge on whether one particular item was or was not fulfilled. In the end, whether the intern is an employee depends on the unique circumstances of the case.

Per the NFIB, the new test “will make it easier for companies to mentor unpaid interns.” But as noted in an article published by the Society for Human Resource Management (SHRM), the new test is more difficult to interpret because there’s no single prevailing factor. All seven factors must be scrutinized according to the situation at hand before a decision can be made as to whether the internship is paid or unpaid.

If the intern is an employee, then he or she is subject to the FLSA’s minimum wage and overtime provisions. The bottom line? If you’re planning to install interns in your company, work with qualified professionals to make sure you are not violating any laws.

We welcome the opportunity to put our construction accounting expertise to work for you. To learn more about how our firm can help advance your success, don’t hesitate to contact Kathy Corcoran at (302) 254-8240.

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