With the summer months approaching and the economy still in a slump, many area businesses are likely to be flooded with the résumés of high-school and college students seeking internships. Before taking action on any of these résumés, it is important for businesses first to be aware that many internships must be paid.
The idea of a paid internship may seem like an oxymoron since the word ‘intern’ usually connotes an unpaid arrangement. Indeed, internships are generally thought of as unpaid, mutually beneficial arrangements: the intern gains valuable work experience that will undoubtedly be included on her résumé, and the business gains free labor for the summer, labor that will undoubtedly answer the telephone, file, copy, and perform other miscellaneous tasks. But for the purposes of wage and hour laws, our traditional notion of what an internship should be is irrelevant.
The Fair Labor Standards Act (FLSA), which is the federal law requiring the payment of minimum wages and overtime compensation, generally prohibits unpaid internships, especially in the private, for-profit sector. Unpaid internships in the public sector and at nonprofit, charitable organizations, where the interns volunteer without the expectation of compensation, are usually permissible. Yet, at for-profit companies, the FLSA by and large requires that interns be paid at least the minimum wage as well as any overtime compensation for hours worked above 40 in a given week. In other words, under the FLSA, interns will oftentimes be treated as employees and must be compensated for all hours worked.
Just in time for the summer months, the U.S. Department of Labor’s Wage and Hour Division, which is the federal agency with enforcement authority over wage-and-hour laws, appears to be cracking down on unpaid internships. In fact, in April, the DOL published a fact sheet on its Web site, titled “Internship Programs Under the Fair Labor Standards Act,” which makes it clear that the DOL will view most internships as an employment arrangement requiring compensation.
Although the fact sheet reiterates the FLSA’s implied mandate that internships be paid, it sets forth a six-part test for determining the circumstances under which an internship can be unpaid. As the fact sheet is quick to point out, these circumstances are very narrow, and the determination of whether an internship meets this narrow exception depends upon all of the facts and circumstances of each internship program, including the following six factors:
- The internship, even though it includes actual operation of the facilities of the employer, is similar to training, which would be given in an educational environment;
- The internship experience is for the benefit of the intern;
- The intern does not displace regular employees, but works under close supervision of existing staff;
- The employer that provides the training derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded;
- The intern is not necessarily entitled to a job at the conclusion of the internship; and
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
If each of the above factors is met, then an employment arrangement does not exist under the FLSA, and, as a result, the FLSA’s minimum wage and overtime provisions do not apply. Under the DOL fact sheet, an intern will be considered an employee if she is engaged in any business operations or is performing any productive work for the business, such as filing, copying, answering telephones, or other clerical work or assisting customers. Additionally, if an intern is placed with a business for a trial period with the expectation that she will be hired on a permanent basis at some later date, that intern will also be considered an employee, entitled to minimum-wage and overtime compensation.
The fact that an intern may be receiving some benefit in the form of a new skill, work experience, or better work habits in the course of their internship is irrelevant and will not exclude them from the FLSA’s minimum-wage and overtime requirements. In fact, meeting each of the six exclusion factors will be very difficult, and the DOL, given its ramped-up enforcement efforts, is likely to be highly skeptical of businesses that do not pay their interns, scrutinizing them very closely.
Educational internship programs are generally exempt from the FLSA’s minimum-wage and overtime requirements. Indeed, the more the internship is structured around an educational program, the more likely it will be considered an unpaid arrangement. Usually, this occurs when a college or university oversees the internship program and provides credit for participation in the internship. Even then, the intern cannot be performing any services that would benefit the business. If the intern does, the internship arrangement will come within the FLSA’s protections.
Before taking on any interns this summer, businesses should carefully examine the nature of the work the intern will be doing. Bear in mind that anytasks that benefit the business, such as filing or copying, entitle an intern to compensation of at least minimum wage and overtime pay, when applicable. Businesses that erroneously label an individual an intern violate the minimum wage and overtime laws, and can face severe penalties.