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To Pay or Not to Pay: Internships Under the Fair Labor Standards Act

by The Human Equation, Inc. on 1/12/2011
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Many employers utilize the services of interns without giving much consideration to whether these volunteer workers should be compensated. In fact, employers often operate under the assumption that interns never need to be compensated. Unfortunately, this assumption may lead to costly violations of the Fair Labor Standards Act (FLSA).

Under the FLSA, any covered, non-exempt individuals who are “suffered or permitted” to work must be compensated for the services they perform for an employer. Except in specific circumstances, this rule applies to interns. In fact, in the for-profit private sector, internships will most often be viewed as employment requiring compensation. However, this does not mean that all internships in the for-profit private sector must be paid.

The United States Supreme Court previously held that the phrase “suffer or permit to work” cannot be interpreted so as to make a person whose work serves only his or her own interest an employee of another who provides aid or instruction. As a result, interns who receive training for their own educational benefit may be excluded from the FLSA’s compensation requirements.

To determine whether this exclusion applies to a specific intern or internship, the following six criteria must be considered:

  1. 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;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. 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;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; AND
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Although any analysis of these criteria must incorporate all of the facts and circumstances of a particular internship, if all of the criteria listed above are met, then an employment relationship will not exist under the FLSA. In such a case, the FLSA’s minimum wage and overtime requirements do not apply. However, employers must understand that this exclusion from the definition of employment is necessarily narrow since the FLSA’s definition of “employ” is very broad. Consequently, employers must proceed cautiously when deciding whether interns must be paid.

Addressing some common problems faced by employers, the Department of Labor offered some observations for increasing the likelihood that an internship will be excluded from the FLSA’s compensation requirements. Although not an exclusive list, these suggestions should put employers in the right frame of mind when it comes to deciding whether interns must be compensated for their efforts.

  • The internship is structured around a classroom/academic experience, as opposed to the employer’s actual operations;
  • The internship provides the individual with skills that can be used in multiple employment settings;
  • The intern does not perform the routine work of the business on a regular and recurring basis;
  • The business is not dependent upon the work of the intern;
  • The business does not use interns as substitutes for regular workers or augment its existing workforce during specific times;
  • The business provides job-shadowing opportunities under close and constant supervision;
  • The internship is of a fixed duration; and
  • The business does not use unpaid internships as a trial period for individuals seeking employment.

Even though the legal framework and analysis for determining whether an intern is entitled to compensation, including the six criteria listed above, have been around for quite some time, the DOL recently published instructional information on the topic to address potential abuses involving the inappropriate use of interns as free labor. This may mean that the DOL is increasing its efforts to catch and punish those employers using interns to get around the FLSA’s requirements. At the very least, it should serve as a warning that employers need to address their practices regarding unpaid interns, and adjust them if necessary.

If you would like more information about the Fair Labor Standards Act, click here to listen to our podcast entitled The Department of Labor’s Growing Interest in Targeting YOU for Wage & Hour Violations.

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Categories: 2011

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