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Who Benefits: You or Your Intern?

Who Benefits: You or Your Intern?

November 05, 2018

Remember those headlines about former interns suing companies for back wages? It caused some companies to scale back or eliminate internship programs. But when federal courts began rejecting the interns’ claims and the Department of Labor’s (DOL) requirements as too restrictive, it also sparked a change. The result: It may be time to dust off the company’s once-retired internship program. This is a great time to discuss internships as many businesses are beginning to budget for next year.

The original lawsuits were sparked by the Department of Labor’s 2010 guidance that stated an unpaid intern would be deemed an employee under the Fair Labor Standards Act unless a stringent six-factor test was met. Former interns lined up to sue, but most courts ultimately rejected their claims along with the DOL’s six-factor test. The result: The DOL rescinded its 2010 guidance and adopted the alternative test advanced by the same courts which rejected the DOL’s prior guidance.

The DOL adopted the “primary beneficiary” test, which requires an examination of the “economic reality” of the relationship between the intern and the employer to determine which party is the primary beneficiary of the relationship. The DOL issued seven factors to consider, but no single factor is determinative. The factors are:

  1. The intern and the employer understand no compensation will be paid.
  2. The intern receives training similar to training provided by educational institutions.
  3. The internship is integrated with the intern’s formal education program or the receipt of academic credit.
  4. The internship corresponds to the academic calendar and accommodates the intern’s academic commitments.
  5. The internship’s duration is limited only to the period during which the intern experiences beneficial learning.
  6. The intern’s work complements, rather than displaces, the work of paid employees while providing the intern with significant educational benefits.
  7. The intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

Employers should look at the facts of each case to determine whether an intern is an employee under the Fair Labor Standards Act. If it is ultimately determined that the intern is actually an employee, then that individual will be entitled to minimum wage and overtime pay. But if the individual is truly an intern, then no minimum wage or overtime pay is required.

Questions about how to tailor your internship program to meet these guidelines? Martin Pringle’s employment attorneys are available to consult with your business leaders and HR professionals.

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