Interns and Trainees: Must They Be Paid?

(Updated May 2010)

By Hillary J. Collyer

Summer is here, which means that student interns are arriving for their summer internships — and many of these internships are unpaid. Internships afford students the opportunity to gain practical, real world experience, as well as explore various career paths and develop potential contacts.

Employers should be careful, however.  There are legal issues surrounding the use of interns. For example, does an unpaid student internship violate the Fair Labor Standards Act (FLSA), a federal wage and hour law?  The Department of Labor (DOL) recently announced that it is stepping up regulation of unpaid internships. If your company is considering using interns, you need to make sure you do not run afoul of the FLSA.

The FLSA defines the term “employ” very broadly, whereas the statute does not define what an intern is, nor does it provide an exemption from minimum wages or overtime for interns. However, the FLSA recognizes that not all persons who perform some duties for an employer are “employees” and, therefore, entitled to compensation in accordance with wage and hour laws.

Generally, the FLSA provides that if your company benefits from the use of interns, you will be required to pay them at least minimum wage. If, however, an intern is not doing anything that directly benefits your company, but is merely observing or learning, you might be justified in not paying them.

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The DOL’s Six-Factor Test
Whether student interns are considered employees under the FLSA depends on the circumstances surrounding their duties and activities. The Department of Labor uses a six-part test to determine who can legally be considered an intern or “trainee.” All of the following criteria must be met, according to the DOL, in order for an individual to be considered a bona fide intern, rather than an employee subject to the FLSA:

• 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 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 intern understand that the intern is not entitled to wages for the time spent in the internship.

This exclusion from the definition of employment is necessarily quite narrow because the FLSA’s definition of “employ” is very broad. Internships in the “for-profit” private sector (as opposed to those in the public sector or non-profit charitable sector) will usually be viewed as employment, unless the above test is met. Interns who qualify as employees rather than trainees must be paid at least the minimum wage and overtime compensation for any hours worked over 40 in a work week.

State-by-state comparison of 50 employment laws in all 50 states, including minimum wage laws

Who Benefits: Intern or Company?
Although courts will use the DOL’s factors to analyze a worker’s status, they do not necessarily weigh all factors equally. In fact, the courts often find that the most important criteria for determining whether an individual is subject to the FLSA is the question of who benefits primarily from the internship.

Essentially, if the intern benefits primarily from the arrangement, they will legally be considered volunteers rather than paid employees.  However, if your company is the primary beneficiary of the intern’s work experience, then the intern will be treated like an employee and must be paid at least the minimum wage.

In one case involving a company’s use of trainees, McLaughlin v. Ensley, the Fourth U.S. Circuit Court of Appeals held that the owner of a snack foods distribution business had to pay trainees for route jobs.  Before being formally hired for a route job, the trainees were required to participate in what was usually five days of exposure to the tasks they would be expected to perform.  The trainees traveled an ordinary route with an experienced routeman.  They loaded and unloaded the delivery truck, restocked stores with the employer’s product, were given instruction on how to drive the trucks, were introduced to retailers, were taught basic snack food vending machine maintenance, and occasionally helped in preparing orders of goods and with financial exchanges.  However, the employer did not pay any form of compensation to the potential routemen during this week.

In determining whether this practice was illegal, the Fourth Circuit explained that the proper inquiry was whether the employer or the trainees principally benefited from the weeklong orientation arrangement. The court found it was evident that the employer received more advantage than the trainees because the trainees were, in fact, helping the employer to distribute snack foods. The skills learned on the job were either so specific to the job or so general to be of practically no transferable usefulness. Hence, the Fourth Circuit ruled that the trainees who participated in the orientation program were entitled to receive minimum wages for their work.

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Ensuring FLSA Compliance
If you choose to offer unpaid internships, you should take care to structure the internship in such a way to ensure that the intern is the one who will receive the primary benefit of the work experience.  Unpaid internships should focus on exposing the intern to a particular career field and offer a mentoring experience.  The focus should not be on production — interns are not to be used as a free source of labor.

Also, if you choose to use unpaid interns, you should document the nature of the relationship.  Such documentation should set forth that both parties intend that the relationship will be an unpaid internship and should emphasize that the arrangement is intended to provide the intern with a practical learning experience. Importantly, the intern’s actual duties should comply with the terms set forth in the written documentation.

Learn more about wage laws and correclty classifying interns and trainees in the Wage and Hour Compliance Manual

Bottom Line
Having summer interns can be a great experience not only for the intern, but also for your company. Interns can bring a fresh perspective to your business and allow you to assess potential employees. Employees often get their proverbial foot-in-the-door by starting as summer interns while in school and, then, becoming full-time employees after graduation.  However, bear in mind that with the benefits of having interns comes the responsibility of ensuring that your company acts in compliance with the wage and hour laws.  If your interns perform actual job duties, they should be paid actual wages.

For more information, visit the U.S. Department of Labor’s website and check out the Wage and Hour Division’s recently issued: Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act.