Under the federal Fair Labor Standards Act (FLSA), employers in “for-profit” enterprises are required to pay compensation to their employees, including a designated minimum wage and overtime pay.
An issue often faced by employers is whether an intern or student is actually an employee entitled to compensation, or whether the intern or student may work without receiving pay.

On January 5, 2018, the United States Department of Labor (“DOL”), which enforces the FLSA, announced in Field Assistance Bulletin No. 2018-2, that it was now going to follow the decision of several appellate courts in promulgating a new test for determining if an intern is actually an employee entitled to compensation.

Specifically, the DOL, announced that it would use the “primary beneficiary test” to determine the status of the would-be intern.  The test is intended to be flexible and allows courts or the DOL to review the “economic reality” of the relationship to determine which party, would-be intern or employer, is the primary beneficiary of the relationship.  

As part of the “primary beneficiary test”, the DOL adopted seven factors used by the courts:
1. 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.
2. The extent to which 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.
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 period in which the internship provides 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 entitlement to a paid job at the conclusion of the internship.

The DOL  stated that no one factor is determinative of the issue and  that the ultimate classification of intern or employee “under the FLSA necessarily depends on the unique circumstances of each case”.
With respect to volunteers for governmental services and non-profits, the Wage and Hour Division of the Department of Labor set forth the following in Fact Sheet No. 71:

“The FLSA exempts certain people who volunteer to perform services for a state or local government agency or who volunteer for humanitarian purposes for non-profit food banks.  WHD also recognizes an exception for individuals who volunteer their time, freely and without anticipation of compensation, for religious, charitable, civic, or humanitarian purposes to non-profit organizations.  Unpaid internships for public sector and non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible.”

Employers who use interns should carefully review whether they are complying with the law.  AMM’s Employment Law attorneys can assist you with this and all compliance issues.  To learn more about Michael Klimpl, visit ammlaw.com.