When is a Company Required to Pay Interns?

by | September 21, 2018

Internships offer additional benefits to employers, namely recruiting and grooming talent for future employment in the organization.

The question is: when is a company required to pay interns? There is a common misconception these individuals do not need to be compensated for their work if they are classified as interns. The misclassification of employees as unpaid interns can lead to liability for employers, and has the potential to lead to costly lawsuits over unpaid wages under the Fair Labor Standards Act. In order to avoid misclassification, the US Department of Labor recently developed a set of criteria related to the “primary beneficiary test” to differentiate an internship from employment and modifies the prior criteria:

  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 is tied to 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.

No single factor is determinative and whether an intern or student is an employee depends on the circumstances of each case.  If a company’s internship program is unable to comply with these factors, then the worker cannot be classified as an unpaid intern, and must be paid at least minimum wage as an employee of the organization.

In order to ensure your internship program complies with state and federal guidelines, contact us at (425) 250-0205.