Employers must ensure when creating an internship program without providing compensation that they comply with local, state and federal laws governing whether participants of their unpaid internship programs are interns or employees. Here’s how you may determine if your business’ unpaid internship program is legal.
As of January 2018, the U.S. Department of Labor (DOL) announced its switch from the old six factor test to the new primary beneficiary test to determine if an intern for a private sector for profit business is considered an employee under the FLSA. The primary beneficiary test includes seven flexible elements that will be applied to each case individually. The seven elements of the primary beneficiary test include:
1. Whether the intern and employer clearly understand there is no expectation of compensation. If there is any promise of compensation, whether expressed or implied, it suggests that the intern is an employee. 2. The degree to which the internship program provides training as would be comparable to that which would be provided in an educational environment, including hands-on and clinical training provided by educational institutions. 3. If the internship is connected to the intern’s formal education institution by receiving academic credits or the integration of coursework. 4. If the employer accommodates the intern’s academic commitment by following the academic calendar. 5. Whether the length of the internship program is limited to a period in which the program provides the intern with beneficial learning. 6. The extent to which the work the intern performs complements rather than displaces the work paid employees perform, while affording significant educational benefits to the intern. 7. If both the employer and intern understand that the internship program will be conducted without leading to a job offer once duration of the internship has expired.
How are these elements applied? Under what circumstances under the FLSA will the internship not be compliant, if it doesn’t meet all factors? If it does meet some, but not all? Employers should note that no single factor of this test is determinative, but the core issue to decide whether an intern would be deemed an employee under the FLSA is whether the internship program is primarily benefitting the student or the employer.
New York has also enacted separate criteria in addition to the federal standards to determine whether an intern working for a for-profit business is subject to the New York State Minimum Wage Act and Wage Orders. Generally, an intern will only be considered exempt from the requirements of Minimum Wage Act and Orders if the intern is not in an employment relationship. Under New York labor standards an employment relationship does not exist if all of the following criteria are met:
1. Although the training includes actual operation at the employer’s facilities, the training the intern receives must be similar to training provided in an educational program (e.g., the program builds on a classroom or academic experience, not the employer’s operations; the intern is not performing routine work of the business on a regular basis and the business does not depend upon the work of the intern). 2. The training must be for the benefit of the intern and any benefit to the employer must be merely incidental. 3. The work the intern performs does not displace regular employees and the intern works under close supervision (e.g., intern’s job shadows an employee to learn certain functions, under the constant supervision of regular employees). It should be noted that interns will be viewed as employees if the business would need to hire more staff or require existing employees to work more hours to do the interns’ work. 4. The activities of interns do not provide an immediate advantage to the employer and on occasion, the employer’s operations may actually be impeded. 5. The intern is not necessarily entitled to a job once the internship has ended and the intern is free to accept a job elsewhere in the same field. 6. Interns must be notified in writing, prior to the start date of the internship, that they will not receive any compensation and are not considered employees for minimum wage purposes. 7. All clinical training is performed at the direction and under the supervision of people who are experienced and knowledgeable of the activity. 8. Interns cannot receive employee benefits including, but not limited to, health and dental insurance, retirement or pension credit, and free or discounted goods and/or services from the employer. 9. The training is general and will prepare interns to work in any similar business. The program may not be specifically designed for a job with the employer that offers the program. 10. The employer’s screening process for accepting interns into its program is not the same as for employment and does not appear to be for that purpose. The screening may only use criteria relevant for admission to an independent education program. 11. Any postings, solicitations, or advertisements for the internship must clearly discuss training or education, instead of employment, although an employer may indicate a qualified graduate may be considered for employment.
Essentially, if employers still want to proceed with an unpaid internship program, they must make sure the program includes a strong educational component. Employers must understand that merely being associated with a university or other institution of education does not make an unpaid internship legally sound.
Here are some key tips employers must consider if they choose to offer an unpaid internship program:
1. Create a formal internship program that includes scheduled start and end dates. 2. Institute a method to maintain a record of the hours worked. 3. Be certain the internship program is not merely a substitute for paid, regular employees or as a trial period. 4. Include in all posting, advertisements or solicitations that applicants eligible for college credit are preferred. 5. Provide an offer letter in writing to the intern stating the internship is unpaid and that a job is not guaranteed.
Be sure to review and update your company’s policies regarding unpaid internship programs to be certain they comply with federal and state standards.