ComplianceLegalMay 09, 2019

When is an intern an employee?

As colleges and universities across the country let out for the summer so begins the season of internships for both employers and the interns they welcome into their businesses.

Traditionally, internships are often unpaid and are viewed as giving someone a chance to see the real-life version of what a career path entails, to pick up college credits, and to add to their resume. However, due at least in part to the economic climate, there has been recent concern that businesses are increasingly attempting to have individuals do the job of an employee without the benefit that an employee receives in the form of protection under the federal Fair Labor Standards Act (FLSA).

Impact of the fair labor standards act on internships

The FLSA requires, among other things, that a minimum wage and overtime be paid to covered employees. In response to this concern, the Wage and Hour Division of the Department of Labor has issued criteria that should be used to determine whether an intern is a trainee or employee who must be paid minimum wage and overtime if he or she provides services to a private-sector employer.

Note that a distinction is made between private- and public-sector employers, because unpaid internships in the public sector and for non-profit charitable organizations where the intern volunteers without expectation of compensation are generally permissible.

The FLSA defines the term "employ" very broadly as including the "suffering or permitting of work." As a result, the Department of Labor emphasizes that internships in the private sector will most often be viewed as employment unless the internship meets a test of exclusion.

The Department of Labor points to the Supreme Court’s holding that the term “suffer or permit to work” cannot be interpreted so as to classify a person as an employee if the individual's work serves only his or her own interest and not the interest of the business or person who is providing them with aid or instruction. In other words, if an internship benefits only the intern and not the person who is providing training, the intern is generally not classified as an employee.

Six-step test for internships

How can you determine whether an internship qualifies for this exclusion? The Department of Labor has issued the following six criteria that must be applied when making this determination:

  • 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.

According to the Department of Labor, 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. That being said, the determination of whether an internship or training program meets this exclusion depends upon all of the facts and circumstances of each program. Therefore, the Department offers more detailed information on some of the most commonly discussed factors for private business internship programs.

Work must benefit the interns, not the company

Internship programs structured around a classroom or academic experience, as opposed to the employer's actual operations, are more likely to be viewed as an extension of the individual's educational experience. A good example of this is where a college or university exercises oversight over an internship program and provides educational credit. Also, the more the internship provides the individual with skills that can be used in multiple employment settings, as opposed to skills particular to one employer's operation, the more likely the intern would be viewed as receiving training.

It's important to note that interns who are engaged in the operations of the employer or are performing productive work (for example, helping customers or clerical work of some kind) will be treated as employees. The fact that the interns may be receiving some benefits in the form of a new skill or improved work habits will not exclude them from the FLSA's minimum wage and overtime requirements because the employer benefits from the interns' work. For the exclusion to apply, the interns must not be performing the routine work of the business on a regular and recurring basis, and the business is not dependent upon the work of the interns.

If an employer is using interns as substitutes for regular workers, augmenting a workforce during specific time periods, or if the employer would have hired additional employees or would have had the existing employees work additional hours had the intern not performed the work, then the interns will be viewed as employees. On the other hand, the internship is more likely to be viewed as a bona fide educational experience if the employer is providing job shadowing opportunities that allow an intern to learn certain functions under the close and constant supervision of regular employees, but the intern performs no or minimal work.

The opposite is true, however, if the intern receives the same level of supervision as the employer's regular workforce. This level of supervision would indicate that an employment relationship exists.

Finally, an important factor for determining whether a worker is entitled to employee protections is the duration of the position. Internships should be of a fixed duration and established prior to the start of internship. The Department of Labor stresses that an unpaid internship generally should not be used by employers as a trial period for individuals seeking employment at the conclusion of the internship period. If an intern is placed with the employer for a trial period with the expectation that he or she will then be hired on a permanent basis, that individual generally would be considered an employee under the FLSA.

Internships can be valuable for both the business and the intern. Just be sure to review your arrangements to avoid any misclassification issues that could result.

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