Summer and fall are the typical times we see businesses bring on students and interns.  Some leave when they go back to school, some stay and participate in work/study programs. Some come back every school break to gain more practical experience in their field of education.

There are two kinds of internships: paid and unpaid.  An intern who is not being paid (or remunerated in any other way) is not subject to the same compliance rules as employees are. For example, an unpaid intern does not need to complete an I-9 or W-4. An intern who is being paid is considered an employee and is then subject to all the general compliance that entails. A paid intern, just like any other employee, must be paid at least minimum wage, and any applicable overtime.

The Fair Labor Standards Act (FLSA) provides a seven-factor test to help determine the economic realities of the intern-employer relationship. No single factor is determinative. Employers need to look at the balance of the factors to see if they weigh in favor of the relationship being an employee-employer relationship (subject to FLSA) or not.

Consider the following questions:

  1. Do both the employer and the intern have a clear understanding that any work performed is unpaid? Any mention or promise of compensation whatsoever may suggest that the intern is an employee and therefore entitled to wages.
  2. Is the knowledge the intern is receiving similar to what they would receive in a classroom (or similar form of study)?
  3. Does the intern receive academic credit for work performed or is the work tied to academic coursework?
  4. Does the intern’s work schedule align with their class schedule and academic commitments?
  5. Does the time frame the intern is working limited to support beneficial learning?
  6. Is the work the intern performs complement the work of employees and educational to the intern (rather than replacing work an employee might do)?
  7. Is there a clear understanding that the internship may not necessarily lead to a paid job when the internship ends?

That’s a lot of questions, but it boils down to this: Does the intern benefit from this experience more than the employer?  If the answer is “yes,” it’s a safe bet that the relationship is an internship not entitled to minimum wage or overtime under the FLSA.

For example, an unpaid intern looking to have a career in marketing might assist a Marketing Director by doing some demographic research for a campaign. The intern learns how and where to do this type of research (educational for the intern) and the Marketing Director has some assistance. Conversely, if the unpaid intern is sent to run errands, grab coffee, build campaigns on their own and answer phones, this is more of benefit to the employer and would likely be considered a wage-earning employee.

It is important for employers to review their internship programs considering the above factors to ensure compliance. The last thing any business wants is a hefty fine for unpaid wages, taxes not withheld, or attorneys’ fees. If your business is considering an internship program and you are not sure whether your circumstances favor an unpaid internship, we are here to helpContact us and we will walk you through your situation to ensure compliance.