Paid vs. Unpaid Interns

I’m often asked how to go about utilizing interns, particularly this time of year and over the summer.  For obvious reasons.  College students are on break and could be a great source of low cost or even free help and many of their schools require internships, such as my son’s school, the Wentworth Institute of Technology.

Many of the micro businesses or start-ups with which I work ask about interns often.  Seems like a great way to get some free help!!  Hold on though.  Federal rules changed a few years ago and regulations are now also in place.  These rules are primarily for For-Profit private sector entities.  As usual, the rules are quite different for Non-Profit organizations or Public Entities.  This question is asked slightly less than the employee vs. independent contractor conundrum.

To be sure, the standard to offer an unpaid internship is very, very high.  In general, the more an internship program is structured around a classroom or academic experience as opposed to the employer’s actual operations, the more likely the internship will be viewed as an extension of the individual’s educational experience (this often occurs where a college or university exercises oversight over the internship program and provides educational credit).

Courts have used the “primary beneficiary test” to determine whether an intern or student is, in fact, an employee under the FLSA.  In short, this test allows courts to examine the “economic reality” of the intern-employer relationship to determine which party is the “primary beneficiary” of the relationship. Courts have identified the following seven factors as part of the test:

1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
6. 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.
7. 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.

Courts have described the “primary beneficiary test” as a flexible test, and no single factor is determinative. Accordingly, whether an intern or student is an employee under the FLSA necessarily depends on the unique circumstances of each case.

If ALL of the factors listed above are met, an employment relationship does not exist under the FLSA, and the Act’s minimum wage and overtime provisions do not apply to the intern.

Here’s a link to a full “Fact Sheet” from the Department of Labor on interns.  It also discusses briefly that the FLSA makes a special exception under certain circumstances for individuals who volunteer to perform services for a state or local government agency and for individuals who volunteer for humanitarian purposes for private non-profit food banks.

In summary, this is a very tricky situation and you should consult appropriate outside advice as to whether you can qualify an intern for an unpaid internship.

Feel free to contact me for more assistance.

Mitch Zucker
PayPros, Inc.
774-218-9486 mobile