It’s that time of year when companies begin seeking out student interns. Internships provide invaluable experience to students and also benefit companies. However, it is important to ensure your company is not running afoul of any laws covering interns.
One of the most important considerations is whether to have paid or unpaid interns. The issue with unpaid interns is that, if they are really employees, then they are entitled to minimum wage and overtime premiums like any other non-exempt employee. However, a bona fide unpaid intern is not an employee and, therefore, not required to be paid like an employee.
Lawsuits by unpaid interns seeking unpaid minimum wage and overtime pay have increased in recent years which has led many companies to scrap their internship programs entirely. In a case brought by former interns who worked as production assistants and bookkeepers on the Fox Searchlight film Black Swan, the Court of Appeals announced a new “primary beneficiary test” and identified seven non-exhaustive factors (see below) relevant to classifying interns as employees. The court also largely foreclosed collective and class action certification in intern cases.
The new “primary beneficiary test” looks to whether the intern or the employer is the primary beneficiary of the relationship. If the intern is the main beneficiary then he or she is not an employee and is not required to be paid. Provided that the intern receives a significant educational benefit and does not serve as a direct replacement for paid employees, the fact that an employer receives some benefit from the unpaid intern will not create an employee relationship. Take note that this test only applies to for-profit companies. Not-for-profit institutions are subject to a different standard.
The court emphasized a flexible approach, and listed these factors as part of the “primary beneficiary test” that should be considered in whether an unpaid intern should be classified as an employee:
The extent to which the intern and the employer clearly understand that there is no expectation of compensation.
The extent to which the internship provides training that would be similar to that which would be given in an educational environment.
The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
The extent to which the internships duration is limited to the period in which the internship provides the intern with beneficial learning.
The extent to which the intern’s work complements, rather than displaces, the work of paid employees.
The extent to which the intern and the employer understand the internship is conducted without entitlement to a paid job when the internship concludes.
In addition to wage concerns, employers should take notice that interns are protected against discrimination and retaliation by the New York State Human Rights Law. Whether paid or unpaid, interns are protected against discrimination to a similar extent as employees. Employers should ensure their organizations apply all of their equal employment opportunity and anti-harassment policies and principles to interns, as they do employees.
Given the fact-intensive nature of whether an unpaid internship is compliant, it is recommended that you seek the advice from a subject-matter Human Resources Consultant. Portnoy, Messinger, Pearl & Associates, Inc. is here to answer any questions you have regarding internships in the workplace. Please keep in mind that in addition to our staff of seasoned HR consultants, we also have a staff of experienced employment lawyers on hand to address any questions you may have regarding legal compliance. Contact us at 800-921-2195 or 516-921-3400. You can also e-mail us at info@pmpHR.com.