Are You Paying Your Summer Intern Correctly?

Smith Anderson

As the summer work season approaches, employers should review whether any “interns” or “volunteers” in their workplaces are classified properly and are being compensated appropriately. Although unpaid internships are frequently offered to provide experience and an opportunity to learn about potential jobs, such internships can lead to lawsuits by individuals who claim they were really employees and were entitled to be paid.

The most cautious approach is to consider all interns to be employees entitled to the minimum wage and overtime pay protections provided by state and federal wage and hour laws. Generally, only if the intern working for a for-profit company is truly a “trainee” as defined by the federal Fair Labor Standards Act (FLSA) is he or she exempt from the minimum wage and overtime protections provided by the FLSA. The federal Department of Labor applies the following six criteria to determine whether an individual qualifies as a trainee who is not entitled to pay:

  1. 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;
  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 employer 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; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

See U.S. Department of Labor Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act (April 2010). Failure to satisfy these six criteria could result in individual or collective actions by misclassified interns for unpaid wages or employer liability for unpaid taxes or employee benefits. Even if the intern agrees not to be paid, such an agreement may not be dispositive if the employer’s pay practices are challenged because an employee can waive his or her entitlement to wages under the FLSA.

The federal Department of Labor recognizes that interns or volunteers in the non-profit sector may not need to be paid for their services. In a recent blog post, the Department stated, “the Wage and Hour Division recognizes an exception to the employment relationship for individuals who volunteer their time freely and without anticipation of compensation for religious, charitable, civic, or humanitarian purposes to non-profit organizations.” However, the Department also stated,“in the for-profit world the more an internship is used to benefit the employer, and the employee performs productive work, the more likely it is that the intern is an employee and therefore entitled to be paid as such.” U.S. Dept. of Labor, Workplace Rights, April 11, 2014.

To determine whether an individual is a trainee, not entitled to pay, or an employee, entitled to pay, courts often focus on the question of who is the primary beneficiary of the internship relationship. Fact Sheet #71 contains the following language: “if the interns are engaged in the operations of the employer or are performing productive work (for example, filing, performing other clerical work or assisting customers), then the fact that they 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.” As a further example, if an intern is hired to perform a specialized task or particular project such as designing a website, the employer is likely receiving the greater benefit, and the intern would likely be considered an employee. 

Employers should document any internship relationship by an engagement letter or agreement that outlines the parties’ expectations for the relationship, particularly the training and skill-development benefits that will be offered to the intern. Such an agreement could establish a timeframe for the beginning and end of the internship and could also state that both parties understand that no job is promised at the end of the internship. Employers may also want to keep records of how much time an intern or trainee spends providing services. Such records could be helpful in defending any future challenge to the nature of the relationship. 

Employers are advised to carefully assess any internship programs they may sponsor to ensure that such programs are in compliance with applicable federal, state and local laws.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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