DOL Revamps Criteria for Determining Whether You Must Pay Your Summer Intern
With the summer season quickly approaching, employers again must confront the issue of determining whether an intern or student is an employee under the Fair Labor Standards Act (FLSA). At stake is whether the intern is required to be paid minimum wage and is eligible for overtime pay.
In January, the Department of Labor (“DOL”) announced that it had rejected the so-called six part test for this determination and replaced it with a more flexible “primary beneficiary” test.
The Old Test
The now-discarded six factor test had the following six elements:
- 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.
All six factors had to be satisfied in order for an employer to conclude that an individual was not entitled to the minimum wage and overtime protections of the FLSA. This six factor test resulted in litigation throughout the country.
Several federal courts of appeals rejected the six factor test reasoning that the fundamental inquiry should examine the economic reality of the intern-employer relationship to determine which party is the primary beneficiary in the relationship.
The New Test
The new Fact Sheet issued by the DOL explains that courts have identified the following seven factors as part of the test:
- The extent to which the intern and the employer clearly understand there is no expectation of compensation. Any promise of compensation, expressed or implied, suggests that the intern is an employee – and vice-versa.
- The extent to which the internship provides training similar to that given in an educational environment, including clinical and other hands-on training provided by educational institutions.
- 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 internship’s 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 while providing significant educational benefits to the intern.
- The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
Because this is a fact-specific inquiry, no single factor is controlling. Employers should consider the totality of these seven factors as they apply to a particular situation to make this determination. In general, the primary beneficiary test is more flexible and more favorable to employers.
Additionally, a version of the primary beneficiary test has already been recognized by a federal district court in Maryland and by the United States Court of Appeals for the Fourth Circuit (Maryland is part of the federal Fourth Circuit).
The DOL also notes in the Fact Sheet that the FLSA exempts certain people who volunteer to perform services for state or local government agencies or who volunteer for humanitarian purposes for non-profit food banks.
The Wage and Hour Division of the DOL also recognizes an exception for individuals who volunteer their time, freely and without anticipation of compensation, for religious, charitable, civic, or humanitarian purposes to non-profit organizations. The new Fact Sheet also states that unpaid internships for public sector and non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible.
Employers should carefully review positions assumed by interns and students and the nature and extent of the working relationship to determine whether these individuals are entitled to the minimum wage and overtime protections of the FLSA.
Marc Engel is an employment attorney experienced in providing successful strategies for managing employees and preventing employment claims. For more information, contact Marc at 301-657-0184 or [email protected].