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Beware of Unpaid Internships

Your small business is at a pinch-point. You have too much work for your current staff, but not enough to hire a new person. But the solution is only a few weeks of school away – you’ll hire an unpaid intern!

Make sure your intern is really an intern and not an employee!

According to the Federal Fair Labor Standards Act, internships must be truly educational. They are about the intern learning your industry, and not your business getting a free drudge.

The Test for Unpaid Interns and Students

Courts have used the “primary beneficiary test” to determine whether an intern or student is, in fact, an employee under the FLSA. Courts will examine the “economic reality” of the intern/employer relationship to determine which party is the “primary beneficiary” of the relationship.

Courts have identified the following seven factors as part of the test:

1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, expressed 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.

Although each factor is important, the experience must be primarily for training purposes and the beneficiary of the experience must be the intern. Every employer should be aware of the potential liability of having interns. Employees may also file a complaint with the U.S. Department of Labor instead of filing a lawsuit.

Employees are entitled to both minimum wage and overtime pay under the FLSA. If they are full-time employees, interns are also eligible for the benefits other full-time employees receive.

The FLSA exempts certain volunteers who perform services for a state or local government agency or who volunteer for humanitarian purposes for non-profit food banks. There is also an exception for individuals who volunteer their time, freely and without anticipation of compensation, for religious, charitable, civic, or humanitarian purposes to non-profit organizations. Unpaid internships for public sector and non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible.

Before you agree to provide an internship opportunity, check with an experienced employment attorney.


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