Is it legal to have an Unpaid Intern? Internships can provide a myriad of benefits for college students and recent graduates looking to get work experience in their chosen career field. Interns have the opportunity to develop transferable skills and build their networks through hands-on experience. Some degrees and certifications even make internships mandatory for graduation. Although in recent years the trend has been toward paid internships, internships can be offered under paid or unpaid conditions. As an employer, it is important to ensure compliance with all employment laws when seeking to hire any intern, but especially one that is unpaid.
Relevant employment law can mostly be found in the Fair Labor Standards Act of 1938 (FLSA) which establishes minimum wage and overtime pay, child labor standards, recordkeeping practices, and more. However, unpaid interns are not protected by the Fair Labor Standards Act because they aren’t considered employees under the Act. The definition of employee has been interpreted NOT to include those who work for their own benefit without an express or implied compensation agreement. Consequently, this presents a gray area as to what employment rights one should provide when employing an unpaid intern.
What Makes an Unpaid Internship Legal?
For one, only employees are protected under the FLSA and therefore entitled to wages. Regardless, the fact that an intern is willing to work without compensation does not automatically equate to the work being legal or ethical; the key is that the intern benefits from the internship more than the employer does. However, as long as the intern is the primary beneficiary of the internship, there is nothing wrong with the employer also benefitting from the relationship. Naturally, employers and interns tend to have varying opinions as to who truly benefits the most from unpaid internships.
The Primary Beneficiary Test
Thus, courts have developed what is known as the “Primary Beneficiary Test” to help answer this question. Under this test, courts look to the “economic reality” of the relationship between an employer and an intern to determine if an individual is in fact an intern or should be classified as an employee. Therefore, employers should note that it’s the relationship and nature of work that is determinative rather than the title assigned to the individual upon employment. The following factors are used in analyzing this relationship:
- Both the intern and the employer agree that compensation is not expected;
- The student is the primary beneficiary of the internship, rather than the employer;
- The intern does not replace or displace a paid worker but does complimentary work under their
supervision; - The internship provides a learning experience similar to that which would be received in school or another learning environment;
- The intern receives educational credit or the internship is related to their coursework in some other way;
- The internship does not interfere with the intern’s school schedule;
- Both parties understand that the intern is not entitled to a full time job at the conclusion of the internship.
These factors have been applied by courts mainly to for-profit companies as non-profit and public sector organizations are held to different standards. While these factors are non-exhaustive, and no single factor is determinative, they represent the analysis that courts have primarily used to determine the economic reality of an employer-intern relationship. If an analysis of the factors suggests that the employer is the primary beneficiary of the internship, then the intern is an employee and they are entitled to minimum wage.
If the analysis suggests that the intern is the primary beneficiary, then the internship can be unpaid. In addition to for-profit companies, these factors also apply to international students without authorization to work. Although they are not authorized to work for compensation, their internship must still pass the primary beneficiary test. Furthermore, employers should remember that unpaid interns are still protected from workplace discrimination on the basis of any protected status, such as race, sex, gender identity, national origin, sexual orientation, disability, religion, age, or veteran status.
Tips to Avoid Noncompliance Issues
- All employment terms relating to the internship should be put in writing and signed by both the intern and employer, including the required work commitment and any compensation or lack thereof.
- Employers should ensure that the intern’s tasks offer hands-on experience and transferable skills relating to their field of study rather than assigning trivial tasks like making copies and fetching coffee.
- Employers should keep track of hours worked the same way they would for an employee.
- Lastly, employers should offer college or other educational credit, if possible.
Overall, employers walk a fine line of compliance and failure can be costly. Larger employers may factor legal fees into their cost of labor, but this isn’t always affordable for a small business owner. When a student is eager to gain experience and values the experience more than compensation, it can be easy for businesses to overlook the necessary due diligence in hiring interns. However, being proactive can help employers avoid any such costs or disputes with interns down the road.
If you have questions related to this blog or need guidance on your obligations, our knowledgeable business law attorneys at EPGD Business Law are here to help. Call us at (786) 837-6787 or email us to schedule a consultation.
