• The U.S. Department of Labor (DOL) continually issues new guidance to help employers determine whether workers in internship programs can be unpaid.
• Unpaid internships in the public sector and for non-profit charitable organizations are generally permissible but can be more challenging in the for-profit sector because the intern may have an employment relationship with the company.
• The DOL uses a seven-factor test to consider who is the primary beneficiary of an intern’s work, and, therefore, whether the intern must be paid.

Unpaid internships in the public sector and for non-profit charitable organizations (where the intern volunteers without expectation of compensation), are generally permissible. The Fair Labor Standards Act (FLSA) makes a special exception under certain circumstances for individuals who volunteer to perform services for a state or local government agency or for individuals who volunteer their services for religious, charitable, civic, or humanitarian purposes to non-profit organizations.

Internships in the private (for-profit) sector can sometimes be more challenging to navigate because if an individual performs services which benefit the company, the intern may have an employment relationship with the organization.

An intern is not free labor — even if the intern is observing or learning while at the workplace. Fundamentally, the issue at hand when it comes to interns is whether or not the individual is considered an “employee” under the FLSA.

The FLSA defines the term “employ” very broadly as including to “suffer or permit to work.” Internships in the “for-profit” private sector will most often be viewed as employment, unless the intern can be considered the primary beneficiary of the internship. The determination of whether an internship or training program meets this exclusion depends on the relevant facts and circumstances of each such program.

The U.S. Department of Labor (DOL) continually issues new guidance to help employers determine whether workers in internship programs can be unpaid.

Seven-factor “primary beneficiary” test

In an effort to consider the primary beneficiary and economic reality of the working arrangement, the DOL uses a seven-factor test to consider who is the primary beneficiary of an intern’s work, and, therefore, whether the intern must be paid.

The seven factors of this test are as follows:

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. However, if an employer clearly explains that no monetary compensation will be received, that suggests the intern is not an employee.
2. The extent to which the internship provides training similar to training that 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 time period in which the internship is providing 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 any entitlement to a paid job at the conclusion of the internship.

While employers were previously required to meet the criteria of all six factors, they may now evaluate each factor individually. As a result, the new test allows more flexibility when assessing the intern-employer relationship. Note that each case must be evaluated individually on its unique circumstances.

Whether an intern or trainee is an employee under the FLSA necessarily depends on the unique circumstances of each case. Each of the seven factors in the DOL’s test must be weighed along with the others to determine whether the intern or the employer is the primary beneficiary of an intern’s work. If it is determined that the intern is the primary beneficiary, they may be unpaid. On the other hand, if the employer is the primary beneficiary, the intern would need to be paid for their work.

Employers should note that it is not always necessary for all seven factors to point in the same direction when making a determination about whether an intern should be paid or unpaid.

Similar to an education environment

In general, the more an internship program is structured around a classroom or academic experience as opposed to the employer’s actual operations, the more likely it is that the internship will be viewed as an extension of the individual’s educational experience (i.e., a college or university exercises oversight over the internship program and provides educational credit).

The more an internship provides the individual with skills that can be used in multiple employment settings, as opposed to skills specific to one employer’s operation, the more likely it is that the intern would be viewed simply as receiving broad training. A schedule that corresponds with the intern’s academic schedule is also more likely to support a non-employee relationship.

Displacement and supervision

If an employer uses interns as substitutes for regular workers or to augment its existing workforce during specific time periods, it will likely be difficult to justify a claim that the interns are not employees. Additionally, if an employer would have hired additional employees or required existing staff to work more hours had interns not performed the work, the interns are more likely to be viewed as employees.

Job entitlement

Unpaid internships generally should not be used by the employer as a “trial period” for individuals seeking employment at the conclusion of the internship period. If an intern is placed with the employer for a trial period with the expectation that they will then be subsequently hired on a permanent basis, that individual would generally be considered an employee under the FLSA.