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By Run ADP

In January, the Department of Labor (DOL) announced that it will use a “primary beneficiary” test to determine whether interns should be considered employees who are entitled to the minimum wage, overtime, and other protections of the federal Fair Labor Standards Act (FLSA). Here are answers to some frequently asked questions about the DOL’s unpaid intern test.

Q: What is the primary beneficiary test?

A: The primary beneficiary test looks at whether the employer or the employee is the primary beneficiary of the relationship. If the employer is the primary beneficiary, then the intern is considered an employee and entitled to all FLSA protections.

Q: How does an employer determine who the primary beneficiary is?

A: The employer must consider a variety of factors, including but not limited to, 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.
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.
The internship is tied to the intern’s formal education program by integrated coursework or academic credit.
The internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
The duration is limited to the period in which the internship provides the intern with beneficial learning.
The intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
The intern and the employer understand that the intern isn’t entitled to a paid job at the conclusion of the internship.

Q: What is the difference between this test and the one used previously?

A: Previously, the DOL used a six-part test. A key difference between the two tests is that all six-parts of the old test had to be satisfied for an internship to be unpaid. With the primary beneficiary test, no single factor is determinative and the unique circumstances of each case must be weighed and balanced. Some of the factors considered are also different. For example, the old test included a requirement that the employer derive no immediate advantage from the activities of the intern. Because of these differences, the primary beneficiary test is considered a more flexible test than the six-part test.

Q: If an intern satisfies the primary beneficiary test, does that definitely mean I don’t have to pay them?

A: Not necessarily. Your state and local jurisdiction may use a different test. To be an unpaid intern, the intern must generally satisfy all applicable federal, state, and local tests. If the intern fails to satisfy a state or local test, then you would have to meet the minimum wage, overtime, and other requirements of that state or local law.

Q: What if after conducting the primary-beneficiary analysis and all other applicable tests, I am still unsure whether the intern can be unpaid?

A: The best practice is to err on the side of caution and classify the individual as an employee and pay them at least the minimum wage and overtime when due.

Q: If it’s clear the intern is the primary beneficiary of the relationship and satisfied all applicable state and local tests, can I still pay them? Are there any advantages to doing so?

A: Yes, employers can still pay interns even if they satisfy all applicable tests for unpaid status. A paid internship can attract a more diverse internship pool and may result in more qualified candidates. Paying interns can also generate goodwill in the community and labor market.

Conclusion:
If you are considering unpaid internships, apply all applicable tests on a case-by-case basis and consult legal counsel if necessary. Remember that even if the intern isn’t entitled to pay, they may be entitled to other employment protections. For example, some jurisdictions, including California, New York and Illinois, have enacted laws that expressly protect unpaid interns from discrimination and/or harassment even if they aren’t considered employees under other employment laws. Check your state and local laws to ensure compliance.

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