Summer Interns: To pay or not to pay?
As summer approaches, many employers are looking to hire student interns. The benefits of summer internships are mutual — companies create an accessible group of potential future hires, while interns obtain real-world workplace experience and training, as well as valuable networking opportunities. But many employers may be wondering — do we have to pay our interns? If so, how much do we have to pay them? And what other issues do we need to consider?
Paid or Unpaid? Consult the ‘Primary Beneficiary’ Test
The Fair Labor Standards Act (FLSA) guarantees employees a minimum wage plus an overtime premium for hours over 40 in a workweek. So, are interns considered “employees” under the Act, making them entitled to minimum wage and overtime? That question must be determined on a case-by-case basis using the “primary beneficiary test.” The primary beneficiary test is flexible and involves seven nonexclusive factors aimed at determining which party (the employer or the intern) is the “primary beneficiary” of the arrangement.
The seven factors to consider are the extent to which:
Both the employer and the intern understand there’s no entitlement to compensation (if there is any promise of compensation, the intern is likely an employee);
The internship provides training analogous to training given in an education environment (including clinical or hands-on training);
The internship is tied to the intern’s education, including whether it entitles the intern to academic credit;
The internship corresponds with the intern’s academic commitments and calendar (especially applicable to summer internships);
The internship’s length is limited to the period in which it provides beneficial education to the intern;
The intern’s work complements (instead of displacing) the work of paid employees, while providing significant education benefits to the intern; and
Both the employer and intern understand the internship doesn’t entitle the intern to a paid job at the program’s conclusion.
If the employer is determined to be the primary beneficiary, then the intern is an “employee” entitled to the minimum wage and overtime payment under the FLSA, among other protections. On the other hand, if the intern is determined to be the primary beneficiary, the employer may be able to lawfully classify them as “unpaid,” though state and local law should be consulted before making a final determination.
If there’s any hesitation about who the primary beneficiary is, take a safe approach — classify the intern as an employee, pay them the minimum wage, and track hours for overtime purposes.
Risks of Misclassifying an Intern
The consequences of misclassifying an intern or volunteer can be costly. Most importantly, it may open you up to a lawsuit for FLSA and/or state law violations. If successful, the misclassified employee will be entitled to back pay and liquidated damages in the same amount (i.e., “double backpay”), plus attorneys’ fees. FLSA violations may carry a penalty of up to $1,000 per violation. In addition, the FLSA (as well as some state laws) allow corporate officers and directors to be held personally liable for minimum wage and overtime violations under certain circumstances.
Should you have any further questions about FLSA classifications, please consult with your Client Experience Manager.
Written by Benjamin J. Naylor and Alexandra E. Miller, attorneys with BurnsBarton PLC.