Do I have to pay my summer help? Avoiding FLSA liability for internships

by Joseph U. Leonoro

With summer almost upon us, many companies will be hiring college and high-school students to work as interns. Often, employers pay interns only a small stipend or don’t pay them at all. It may make good business sense not to pay interns because they usually aren’t bringing the same experience, skill, and expertise to the job that regular employees provide. For interns, the opportunity to gain practical experience, build a relationship, and pad their résumé is often more valuable than any compensation they might earn. Unfortunately, the issue isn’t that simple. 

DOL will closely examine unpaid internships
The failure to pay interns the minimum wage and overtime under the Fair Labor Standards Act (FLSA) has been a hot issue in recent years. In several high-profile cases, large companies have been found to be in violation of the FLSA because they didn’t pay interns minimum wage and overtime. Most interns are employees subject to the Act’s minimum wage and overtime requirements. If an intern isn’t an employee within the meaning of the FLSA, the minimum wage and overtime requirements of federal law don’t apply.

The determination of whether an intern is an employee is very fact-specific, and all the circumstances of the internship must be considered. The U.S. Department of Labor (DOL) uses a six-part test for analyzing whether an intern is actually an employee. Each of the following factors must be met for the intern to be unpaid:

1. The internship, even though it includes the actual operations of the employer’s facilities, is similar to training that would be given in an educational environment.
2. The internship experience is for the benefit of the intern.
3. The intern does not displace regular employees but works under close supervision of existing staff.
4. The company that provides the training derives no immediate advantage from the activities of the intern, and on occasion, its operations may actually be impeded.
5. The intern is not necessarily entitled to a job at the conclusion of the internship.
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Most internship programs do not meet each of those criteria. Given the DOL’s strict enforcement of the guidelines, it’s difficult for a for-profit company to design an internship program in which participants will not be considered employees for purposes of the FLSA.

How to make sure an intern is really an intern
The DOL offers some practical advice for structuring an internship program that prevents interns from being designated employees subject to the FLSA’s minimum wage and overtime requirements. You should structure the program so that it resembles a classroom or an academic experience rather than the actual operations of your company. That can be accomplished by working with a college that oversees the program and provides course credit to interns. The program should give interns an opportunity to develop skills that can be used at other places of employment.

Don’t use an intern as a replacement for regular employees. In fact, an unpaid intern should perform little or no productive work. The DOL cites filing, performing other clerical work, or assisting customers as the type of productive work that would create an employment relationship. Structure the program so that the intern—rather than the company—benefits most from the relationship.

Moreover, your company should exercise significant supervision over the intern. In a perfect scenario, the intern would shadow a regular employee and would not perform substantial productive work on her own. The intern should sign an acknowledgment that she understands she will not be paid any compensation.

Although it can be tempting, you shouldn’t use an internship as an extended interview or trial period for future employment. The intern should have no expectation that he will be hired on a permanent basis, and the internship should be for a fixed period.

Bottom line
Because of the strict requirements for using unpaid interns and the DOL’s recent focus on the issue, the best approach for most private-sector employers is to treat interns as employees and pay them minimum wage and overtime. If you want to use unpaid interns, you should carefully design a program that meets the requirements set forth by the DOL.

Joseph U. Leonoro is an attorney with Steptoe & Johnson PLLC, practicing in the firm’s Charleston, West Virginia, office. He may be contacted at joseph.leonoro@steptoe-johnson.com.