The U.S. Department of Labor’s (DOL) revised test for determining whether interns are employees under the Fair Labor Standards Act (FLSA) just turned one, and the summer hiring season is fast approaching. Misclassification can be costly for employers. Let’s make sure you understand and are correctly applying the DOL’s revised test for unpaid internships.
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DOL Identifies 7 Factors for Determining ‘Primary Beneficiary’
A year ago, the DOL announced a new primary beneficiary test for determining whether interns are employees under the FLSA. The Act requires for-profit employers to pay employees for their work. Under the Act, “employ” means to “suffer or permit to work.” Based on that vague definition, interns and students may qualify as employees to whom compensation must be paid.
Under the primary beneficiary test, the DOL uses seven factors to determine whether the employer or the intern is the primary beneficiary of the relationship. The test is intended to be flexible and dependent on the unique circumstances of each case, and no single factor is determinative. In its statement announcing the adoption of the primary beneficiary test, the DOL noted the change would “eliminate unnecessary confusion among the regulated community” and give the Wage and Hour Division (WHD) “increased flexibility to holistically analyze internships on a case-by-case basis.”
The primary beneficiary test includes an examination of:
- The extent to which the intern and the employer clearly understand there is no expectation of compensation (any promise of compensation, express or implied, suggests the intern is an employee—and vice versa);
- The extent to which the internship provides training that would be similar to training provided in an educational environment, including the clinical and other hands-on training offered by educational institutions;
- The extent to which the internship is tied to the intern’s formal educational 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 it 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; and
- The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at its conclusion.
If the intern is found to be the primary beneficiary of the parties’ relationship, he wouldn’t be considered an employee under the FLSA, and he would therefore be exempt from the Act’s payment requirements for employees.
What This Means for You
The DOL has increasingly scrutinized internships and cracked down on the misclassification of workers and interns. As a result, you should take steps to ensure your interns meet the primary beneficiary test. Evaluate each internship on a case-by-case basis, and carefully consider the structure of your internship program and the program run by the schools with which you affiliate, as well as any compensation you offer and your method of payment. Merely labeling a summer position an “internship” doesn’t mean you won’t have to pay the intern—compensability depends on whether the intern receives the primary benefit of your arrangement with him.
Additionally, you must take care that all written communications and materials related to your internship program are carefully worded to avoid any inference of an employment relationship. Double-check the wording on your webpages and downloadable information and any mailers, marketing materials, internship agreements, and other relevant documentation that you provide to interns and their schools.
Jennifer L. Nusbaum is an Associate with Womble Bond Dickinson (US) LLP. She also contributes to the North Carolina Employment Law Letter and can be reached at jennifer.nusbaum@wbd-us.com.