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Summer Interns: To pay or not to pay. What are the rules?

The legal issues

The question of whether interns qualify as employees has been the subject of significant litigation. Earlier this year, the DOL adopted a seven-prong “primary-beneficiary” test to determine whether an intern qualifies as an unpaid trainee, exempt from FLSA wage rules.  Unlike prior standards, this global review does not include a rigid set of requirements.  Instead, various factors are considered to determine who will benefit most from the internship – the intern or the employer. The factors include the extent to which:

  1. The intern and the employer clearly understand that there is no expectation of compensation;
  2. The internship provides training that is similar to what would be provided in an educational setting, including hands-on learning;
  3. The internship is tied to the intern's formal education program, such as integrated coursework or the receipt of academic credit;
  4. The internship accommodates the intern's academic commitments by corresponding to the academic calendar;
  5. The length of the internship is limited to the period in which the intern receives beneficial learning;
  6. The intern's work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern; and
  7. The intern and the employer understand that the internship is conducted without entitlement to a paid job after the internship ends.

According to the DOL, the test helps to “examine the ‘economic reality’ of the intern-employer relationship.” 

Best practices

This test is more flexible than prior standards, and no single factor determines the outcome. However, a detailed review of the unique circumstances of each internship is required.  That will take will some time.

If an employer decides to offer an unpaid internship, the company should make sure there is documentation of clear communications between the intern and the employer that shows both parties agree the intern will not be paid. 

The employer should also verify if their state has special laws or regulations governing internships.

Another potential issue regarding interns involves whether they are employees subject to workers’ compensation laws.  Workers’ compensation coverage is important in these scenarios because if the intern is an employee and they are injured on the job, they can file a claim under the state’s workers’ comp laws. On the other hand, if the intern is a volunteer or unpaid trainee, he or she can sue the company for injuries sustained while working for the organization. 

The HR side

Once a company has decided to offer an internship program, whether paid or unpaid, they should create a plan to ensure the program’s success. A good first step is to map out the goals of the program and what the company wants to accomplish, long-term. The person to lead the interns and run the program should also be carefully selected. The coordinator should be the interns’ first point of contact and serve as the go-to person for any issues or questions. Select someone who is a knowledgeable and enthusiastic representative of the organization. Many companies also assign each intern a mentor to oversee their personal experiences. 

Additionally, just like with new hires, an internship program should have a full onboarding component, such as a review of company documentation and policies, as well as an introduction to the workplace and other employees.  This is a good opportunity to confirm that you are properly and consistently branding your company internally.

Setting goals for your intern is another important step in a successful program.  These goals will vary depending upon whether the internships are paid or unpaid; remember, for unpaid internships, the goals should primarily benefit the intern. 

Finally, conducting exit interviews at the end of each internship assignment is a sound way to ensure that you are meeting your company’s goals as well as meeting the expectations of your interns.

Given the constantly shifting legal landscape and greater demands on employers, remember to consult with someone who knows employment law and the rules in your state before introducing or expanding an internship program in your company.