If interns are functioning as unpaid employees, your organization may risk liability exposure for wage and hour claims and penalties for failing to provide workers’ compensation coverage. Therefore, it is important to have an internship program in compliance with the legal guideline provided by the Department of Labor.
In 2018, the Department of Labor announced that it will use the “primary beneficiary” test to determine whether interns should be classified as employees under the Fair Labor Standards Act (FLSA). The “primary beneficiary” test applies to internships at for-profit employers.
The Department of Labor Fact Sheet #71 notes that the FLSA exempts individuals who volunteer their time, freely, and without anticipation of compensation for “religious, charitable, civic, or humanitarian purposes to non-profit organizations.” Under these circumstances, non-profit charitable organizations can utilize unpaid internship programs. Where the intern volunteers without the expectation of compensation, the exemption applies even if the employer is the primary beneficiary in the relationship.
What is the “primary beneficiary” test?
The “primary beneficiary” test was adopted by the Federal Circuit courts to determine whether an intern or student is, in fact, an employee under the Fair Labor Standards Act (FLSA). The test allows courts to consider the “economic reality” of the intern-employer relationship to analyze whether the internship is primarily for the economic benefit of the employer or the educational benefit of the intern.
How do you determine who the “primary beneficiary” of the internship?
Courts have identified the following seven factors as part of the test:
- The intern and employer have a clear understanding that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee.
- The internship provides training that would be akin to that given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
- Internship tied to formal education program by integrated coursework or the receipt of academic credit
- The internship accommodates the intern’s academic commitments by corresponding to the academic calendar
- Duration of the internship is limited to the period in which the internship provides the intern with beneficial learning
- The intern’s work should complement, not displace, the work of paid employees while providing the intern with significant educational benefits
- Intern and employer understand that the internship does not entitle the intern to a paid job at the conclusion of the internship
The “primary beneficiary” test is flexible, and no single factor is determinative. Whether an intern or student should be classified as an employee under the FLSA depends on the circumstances of each case. If the analysis confirms that the intern or student is not an employee, then the internship can be unpaid. On the other hand, if it becomes clear that the internship is primarily for the economic benefit of the employer, then the intern must be compensated as an employee. We recommend that you review your unpaid internship program with your employment attorney to make sure you are following the wage and hour regulations under the FLSA.
Whether your organization is a nonprofit or for-profit corporation, the following are some basic risk management tips to consider:
- Create a formal internship program with scheduled start and end dates and have the duration of the internship match to an academic schedule (summer or semester-length)
- Applications for soliciting intern candidates should indicate that applicants who receive college credit are preferred or to obtain confirmation from the applicant’s school that the internship is approved as educationally relevant
- Written offer letters to interns indicating that (a) the internship is unpaid and (b) a job is not guaranteed when the internship program is complete or when the intern completes their education
- Supervise unpaid interns closely to ensure they do not jeopardize their intern status by performing too much employee-type work (such as menial or purely administrative tasks unrelated to their educational programs)
- Obtain a volunteer-accident insurance policy
The list is not exhaustive of the steps your organization should take to mitigate liability exposures. Internship programs can be mutually beneficial to organizations and interns if implemented correctly. Unpaid interns can be covered under a volunteer accident policy for injuries arising from their work in their internship. A volunteer Accident policy will also provide goodwill toward your organization. Let us know if you have any questions regarding volunteer-accident policy coverage or would like us to provide a quote. We are here to help!
This article is intended to be used for informational purposes only and is not to be construed as legal advice