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Summer Interns: To Pay Or Not To Pay?

Now that summer season is here, it's time to review your payment obligations to interns.

The DOL's Test for Interns and Trainees

Although the Fair Labor Standards Act (FLSA) doesn't define intern or provide an exemption from minimum wages or overtime for interns, it recognizes that not everyone who performs duties for an employer is an "employee," and thus entitled to compensation under the wage and hour laws. Generally, the FLSA provides that if a company benefits from using interns, it must pay them at least minimum wage. However if the intern isn't doing anything that directly benefits your company but is just observing or learning, you might be justified in not paying him or her.

Whether student interns are considered employees under the FLSA depends on the circumstances surrounding their duties and activities. The U.S. Department of Labor (DOL) uses a six-part test to distinguish interns or "trainees," from employees:

  1. The training, even though it includes actual operation of the employer's facilities, is similar to what would be offered in a vocational school.
  2. The primary benefit of the training is for the intern.
  3. The trainees don't displace regular employees, but work under close observation.
  4. The employer derives no immediate advantage from the activities of the interns, which on occasion might actually be counterproductive.
  5. The intern is not guaranteed a permanent job at the end of the program.
  6. Both parties understand that the intern is not entitled to wages for the time spent in the internship.

Who Benefits: Intern Or Company?

Although courts will use these factors to analyze a worker's status, they don't necessarily weigh all them equally. In fact, judges will often find that the most important criterion for determining whether someone is subject to the FLSA involves which party enjoys the primary benefit from the internship.

Essentially, if the intern benefits primarily from the arrangement, she will be considered a volunteer, rather than a paid employee. However, if the company is the primary beneficiary of the intern's work experience, this person will be considered an employee who must be paid at least the minimum wage.

In one case involving a company's use of trainees, McLaughlin v. Ensley, the Fourth U.S. Circuit Court of Appeals held that the owner of a snack foods distribution business had to pay trainees for route jobs. Before being formally hired for such a job, trainees were required to participate in what was usually five days of exposure to the tasks they would be expected to perform. They traveled an ordinary route with an experienced route man, loaded and unloaded the delivery truck, received instruction on how to drive the truck, restocked stores with the employer's product, were introduced to retailers, learned basic maintenance on snack food vending machines and occasionally helped prepare orders of goods with financial exchanges. However, the employer did not pay the trainees during their training week.

In determining whether this practice was legal, the Fourth Circuit explained that the key question involved whether the employer or the trainees received the principal benefit from the orientation. The court held that the employer enjoyed a greater advantage than the trainees because they were, in fact helping the company distribute snack foods. The skills they learned in training were either so specific to the job or so general that they had practically no transferable usefulness. As a result, the appeals court ruled that the trainees who participated in the orientation program were entitled to receive minimum wages.

Ensuring FLSA Compliance

If you offer unpaid internships, structure the position so that the intern is the one who will receive the primary benefit of the work experience. Unpaid internships should concentrate on exposing the intern to a particular career field and offer a mentoring experience. The focus should not be on production - do not use interns as a free source of labor!

Also, if you use unpaid interns, document the nature of the relationship, explain that both parties intend the arrangement to be an unpaid internship that will provide the intern with practical learning experience. The intern's actual duties should comply with the terms set forth in this s written documentation.

The Bottom Line:

Having interns can be a great experience, not only for the intern but also for your company. Interns can bring a fresh perspective to your business and allow you to assess potential employees. Employees often get their proverbial foot in the door by starting as summer interns while in school and then becoming full-time workers after graduation.

 
Shawna Kreis
Other articles by: Shawna Kreis
Categories: News, Gates-Cole Insurance, Employee Matters, New York, Tips
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