Does Your Company’s Unpaid Internship Pass the Test?

May 10, 2017 | Compliance & Risk Management, Time and Labor

shutterstock_402334600College commencement season is upon us, U-Haul rentals are about to spike, and scores of college students will soon start their summer internships. Though many such internships have long been unpaid, over the past decade the Department of Labor (DOL) has issued guidelines that you may want to review. Primarily, you’ll want to be sure that any unpaid internships your company offers pass the Wage and Hour Division (WHD) standards test for internships under the Fair Labor Standards Act (FLSA).

A Six-Factor Test

The FLSA uses six basic factors in determining whether an intern should be paid:

  • 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.
  • The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Note that this test currently applies to for-profit internships in the private sector. According to the WHD, “unpaid internships in the public sector and for non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible,” though it adds that it is reviewing the need for additional guidance on the public and non-profit sectors.

If you’re at all concerned that the internships you offer may fall short on any one of these factors, you may want to consider converting to a paid internship, which would require paying at least minimum wage as well as overtime.

The “Primary Beneficiary” Test

You may be asking yourself what incentive a business would have to meet all six factors of this test, especially factor four, the “no immediate advantage” test. In some jurisdictions—specifically, the ones falling within the 2nd and 11th circuit courts of appeals—justices have provided a little breathing room, allowing companies to derive some benefit from unpaid interns, provided the intern remains the “primary beneficiary.” The 2nd– and 11th-circuit tests evaluate a set of flexible, non-exhaustive factors, such as:

  • The intern and the employer understand there is no expectation of pay during the internship and no job guarantee thereafter.
  • The internship offers training similar to that provided by an educational environment—like clinical training.
  • The internship is tied to the intern’s formal education, either through integrated coursework or academic credit.
  • The internship is aligned with the academic calendar.
  • The intern’s work complements—rather than displaces—paid employees’ work and provides significant educational benefits to the intern.

Of course, if you’re not in the jurisdictions of the 2nd– and 11th-circuit courts—which cover New York, Connecticut, and Vermont in the first case; and Florida, Alabama, and Georgia in the second—you don’t have recourse to the more flexible tests.

To Pay or Not to Pay?

If you are a for-profit enterprise in the private sector, you should strongly consider paying your interns minimum wage, limiting work hours, and complying with all other employment laws that apply.

If you think that your unpaid internship qualifies under FLSA guidelines, you should begin by recruiting interns who will receive a demonstrable benefit in terms of training or education. And you should make certain that your program has a strong, and demonstrable, educational component.

According to Kristy Offitt, an attorney with Ogletree Deakins in Atlanta, employers with unpaid internship programs should consider taking these steps to head off potential legal questions:

  • Maintain a formal internship program with scheduled start and end dates.
  • Keep records of all hours worked.
  • Emphasize the training and supervisory nature of the program and ensure they are put into practice.
  • Demonstrate that the internship isn’t used as a substitute for regular, paid employees or as a trial employment period.
  • Begin the internship with a written offer letter, stating that the internship is unpaid and that a job is not guaranteed.
  • In advertising or posting the internship, state a preference for applicants who will receive college credit.

Any questions about the legal status of your current internship program? Need guidance about starting a new program? Contact your Axiom representative for more information.