On Jan­u­ary 5, 2018, the U.S. Depart­ment of Labor’s Wage and Hour Divi­sion (WHD) cre­at­ed new guid­ance for deter­min­ing whether a work­er could be clas­si­fied as an unpaid intern under the fed­er­al Fair Labor Stan­dards Act (FLSA). The FLSA requires “for-prof­it” employ­ers to pay employ­ees for their work. Interns, how­ev­er, may not be clas­si­fied as “employ­ees” under the FLSA and there­fore are not enti­tled to com­pen­sa­tion for their work. The new rules give employ­ers more flex­i­bil­i­ty in estab­lish­ing unpaid internships.

Under the pre­vi­ous six-fac­tor test, an intern was con­sid­ered an employ­ee enti­tled to com­pen­sa­tion unless all of the fol­low­ing fac­tors were met:

  1. The intern­ship, even though it includ­ed actu­al oper­a­tion of the facil­i­ties of the employ­er, was sim­i­lar to train­ing that would be giv­en in an edu­ca­tion­al environment;
  2. The intern­ship expe­ri­ence was for the ben­e­fit of the intern;
  3. The intern did not dis­place reg­u­lar employ­ees, but worked under close super­vi­sion of exist­ing staff;
  4. The employ­er that pro­vid­ed the train­ing derived no imme­di­ate advan­tage from the activ­i­ties of the intern, and on occa­sion its oper­a­tions may actu­al­ly have been impeded;
  5. The intern was not nec­es­sar­i­ly enti­tled to a job at the con­clu­sion of the intern­ship; and
  6. The employ­er and the intern under­stood that the intern was not enti­tled to wages for the time spent in the internship.

In its new guid­ance (Field Assis­tance Bul­letin No. 2018–2), the WHD has adopt­ed the “pri­ma­ry ben­e­fi­cia­ry test,” favored by sev­er­al fed­er­al Cir­cuit Courts, as the stan­dard for deter­min­ing whether interns at for-prof­it employ­ers are employ­ees under the FLSA. The pri­ma­ry ben­e­fi­cia­ry test exam­ines the eco­nom­ic real­i­ty of the intern-employ­er rela­tion­ship to deter­mine which par­ty is the pri­ma­ry ben­e­fi­cia­ry of the rela­tion­ship. The fol­low­ing sev­en fac­tors are used to make this determination:

  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 after the internship.

What is dif­fer­ent now is that not ALL of the sev­en fac­tors must be met in order to deter­mine employ­ee sta­tus. Accord­ing to the WHD, no sin­gle fac­tor is deci­sive and the deter­mi­na­tion must be made on the unique cir­cum­stances of each case.

If analy­sis of these facts reveals that an intern is actu­al­ly an employ­ee, then he or she is enti­tled to both min­i­mum wage and over­time pay under the FLSA. Con­verse­ly, if the analy­sis con­firms that the intern or stu­dent is not an employ­ee, then he or she is not enti­tled to either min­i­mum wage or over­time pay under the FLSA.

What This Means for Employers

As a result of the new guid­ance, employ­ers should review the sta­tus of any per­son work­ing for them that they con­sid­er an “intern” and update their cur­rent intern­ship pro­grams to con­sid­er the WHD’s new rules.

Orig­i­nal­ly pub­lished by www.ThinkHR.com