Update: New Rules on Unpaid Interns

The work is piling up and you could really use an extra pair of hands around the office. But you’re managing labor costs. Even though the economy has improved, it’s a competitive world out there. We’re all doing more with less. An unpaid intern seems to be the answer. Talk about the best of all worlds:  your company benefits from an eager student ready to gain real-world experience, you give a hand-up to a future professional, and you get some no-cost labor in the mean time. But, hold on. Before you pick up that phone and call the Career Services Office at your local university, you need to know whether that student is legally considered an “unpaid intern” or actually an “employee” subject to the wage and hour requirements under the Fair Labor Standards Act (“FLSA”). Why? Because if you misclassify that student, you may be exposing your company to costly risks that outweigh any short-term savings you may enjoy.

If the intern is legally considered an “employee,” she is subject to the minimum wage and overtime requirements under the FLSA. The FLSA defines “employ” very broadly as to “suffer or permit to work.” This definition on its own gives little guidance to employers.

To help determine whether a student should be classified as an “employee” or “unpaid intern,” the U.S. Court of Appeals for the Eleventh Circuit recently joined the Second Circuit in rejecting the Department of Labor’s rigid six-part test (the test about which we wrote about here: http://goo.gl/Gybw7), and instead adopted a more permissive seven-factor test to assess who the “primary beneficiary” is in the relationship between the student and the company. Schumann v. Collier Anesthesia, P.A., 2015 U.S. App. LEXIS 16194 (11th Cir. 2015). According to the Eleventh Circuit, these factors focus on the benefits to the intern while also considering the manner in which the employer manages the internship program so as not to take advantage of or abuse the intern.

The seven factors are as follows:

  • 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.
  • The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including clinical and other hands-on training provided by educational institutions.
  • The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  • The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar. In further explaining this factor, the court stated that when the training and academic commitment are one and the same, this consideration must account for whether a legitimate reason exists for training to occur on days when school is out of session.
  • The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning. The court recognized that designing an internship program is not an exact science. The length of the internship will not always match up perfectly with the skills to be taught and the experience to be gained. Therefore, the court will consider whether the duration of the internship is grossly excessive in comparison to the period of beneficial learning.
  • 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.
  • 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.

These seven non-exclusive factors amount to a balancing test in which all the facts and circumstances are considered. While not as rigid as the DOL’s six-part test, none of the factors is dispositive. For example, you may read factor one and think that you’re not going to pay the student so clearly she is considered an “intern.” Not so fast. The court will balance all the factors and any other relevant information in making its decision. Also, the factors do not all need to point in the same direction in order for the court to find your “unpaid intern” is actually an “employee.” So even if you think several of the factors point in your direction, the court could still find that in the overall “weighing” of the circumstances, the student is an “employee.”

The lesson from all this—unless you truly want to offer training and vocational opportunities to a student and you are sure that your intern program would be found favorable when weighed against the primary beneficiary factors, you may want to reconsider an unpaid intern. Bringing an unpaid intern on board has risks. It is not an easy or quick alternative to hiring a regular employee and may actually prove to be expensive in the long run if your company is found liable for wage and hour violations, tax penalties, or other legal missteps. If you’re AT ALL uncertain, avoid the risks. Pay the intern at least the applicable minimum wage. If the intern is not worth even this marginal expense, perhaps the internship program should be reevaluated.

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Author: Todd Stanton

Todd is the founder of Stanton Law, LLC in Atlanta, GA, where he is focused on helping companies avert employment-related issues without sacrificing managerial efficiency. “I take great pride in being able to provide counsel to employers and help them achieve practical solutions to what are often very personal, and potentially expensive, problems. I feel very lucky to be where I am right now, doing work I believe in. I really have a pretty good gig.” View all posts by Todd Stanton →

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