In January 2018, the U.S. Department of Labor issued new rules for unpaid internships. The new rules give much needed flexibility for employers looking to engage unpaid interns.
First, some background. The Fair Labor Standards Act, the federal wage and hour law, requires that employers pay at least minimum wage or a set salary to employees, depending upon the nature of their work. But, bona fide interns can gain experience without pay. DOL’s new rules make it easier to distinguish between “employees” and “interns.”
Courts had held that DOL’s old intern rules were too rigid and suggested that what matters in assessing the intern-employer relationship is who stands as the “primary beneficiary.” Accordingly, DOL’s new “primary beneficiary” test recommends that companies should consider seven factors, but without necessarily requiring that all boxes must be checked.
Keep reading for the seven factors and some practical tips on how your small businesses can use summer interns.
Greater Flexibility Under DOL’s New Guidance
Seven Factors for Intern Classification:
1. 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.
2. 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.
3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
6. 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.
7. 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.
What Does This Mean for Small Business and Internship Applicants?
The new rules enable small businesses to give meaningful projects to interns, to aid other employees while allowing the intern the opportunity to learn the industry and to develop professionally. By contrast, the old rigid standard discouraged employers from hiring an intern for fear of potential lawsuits.
The new standard still emphasizes that the internship should provide some educational opportunity, but it encourages companies to utilize interns in a complimentary relationship with existing paid employees. In other words, businesses can now benefit from the intern’s work product, so long as—when considering the totality of the circumstances—the intern gains more in terms of career development.
Final Practice Tips
Make sure you review DOL’s guidance and ensure prospective interns will benefit educationally from the experience.
Make sure interns understand at the outset that they have signed-up for an unpaid internship.
Make sure applicable state law is followed.