When employers onboard interns, the question “to pay or not to pay” often arises. The Department of Labor provides guidance on this question with Fact Sheet #71. It provides a 7-factor test to determine whether an internship may be unpaid.
In 2010 the DOL provided a 6-factor test to evaluate internship programs. All six of the criteria had to be met before an unpaid internship could safely be categorized as such. Based on those factors, most internships in for-profit, private sector organizations would be considered employment relationships and required to be paid. The underlying consideration was for whom the internship benefited, the student or the employer.
The existence of all of the following criteria was required in order to deem the internship eligible for unpaid status:
• The internship, even though it includes actual operation of the facilities of the employer, is similar to training that 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.
In general, unpaid internships are permissible in the public sector and non-profit organizations, the issues most often relate to internships with private, for-profit, organizations. The new 7 factor criteria provide greater flexibility and makes it easier to create unpaid internships for private sector organizations, provided all seven requirements are met.
The following seven factors should now be considered and weighed:
• 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.
• 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.
• The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
• The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
• The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
• 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.
• 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.
Keep in mind that no single factor is determinative, and each internship position should be evaluated on a case-by-case basis. Also, these criteria apply only to federal wage and hour laws, and state or local regulations may differ.
To be clear, if an internship is unpaid, the intern essentially is an employee and for that reason, all minimum wage requirements must be met. Also, bear in mind that your policies should specifically exclude interns, particularly paid interns that would be considered employees from any benefits or other practices that are generally available to all employees.
It is important to know that certain benefits cannot be excluded. For example, you would need to work with your broker to understand how excluding interns from your health or FSA benefits would impact your tax penalties under the ACA. In addition, FMLA generally applies to paid interns if they meet other eligibility requirements.
Workers’ Compensation generally applies to both paid and unpaid interns except for in certain, very limited, circumstances.
Another frequent question from employers is: how do we handle “hiring” or “onboarding” interns? It is important that since many of the same liabilities arise with interns as with employees that you don’t disregard a formal orientation process, to include training on many of the same areas as regular staff: confidentiality, safety, discrimination and harassment. It is helpful to have an intern agreement that outlines pay information and any applicable benefits, and which specifically makes clear their status at the organization.
For more information on administering internship programs, contact the Advice Team.
Written by a Catapult HR Advisor