Whether an eager young worker toiling away at your office is an intern or an employee under the Fair Labor Standards Act (FLSA) is a question that has befuddled employers, courts, and regulators for some time. The U.S. Department of Labor (DOL) recently issued new guidance in an attempt to bring clarity to the issue after its previous efforts only seemed to generate more confusion.
Distinguishing between interns and employees is important because the FLSA requires “for-profit” employers to pay employees for their work – including complying with minimum wage and overtime laws- but interns and students not considered “employees” do not need to be compensated.
The DOL established a six-part employee/intern test in 2010 that was subsequently rejected by several federal appellate courts in favor of other analytical frameworks. The DOL has now adopted the “primary beneficiary” test which has been used by many of those courts. As noted in its January 2018 fact sheet, the DOL characterized that test as being one that “allows courts to examine the ‘economic reality’ of the intern/employer relationship to determine which party is the ‘primary beneficiary’ of the relationship.”
The seven-factor test includes determining:
- The extent to which the intern and the employer clearly understand that there is no expectation of compensation.
- The extent to which the internship provides training that would be similar to that which would be given in an educational environment.
- 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.
- The extent to which the internship’s duration is limited to the period in which the internship provides the intern with 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.
The DOL notes that “Courts have described the ‘primary beneficiary test’ as a flexible test, and no single factor is determinative. Accordingly, whether an intern or student is an employee under the FLSA necessarily depends on the unique circumstances of each case.”