Now that summer is here, it's a good time to review your payment obligations to interns and trainees.
The DOL's Test for Interns and Trainees
Although the Fair Labor Standards Act (FLSA) does not define "intern" or provide a blanket exemption from minimum wage and overtime requirements, the law recognizes that not everyone who performs duties for an organization is an "employee." Generally, if an employer receives a primary benefit from the arrangement, the worker is likely an employee entitled to at least minimum wage.
Whether a student intern is considered an employee under the FLSA depends on the facts surrounding the position. The U.S. Department of Labor uses a six-part test to distinguish unpaid interns or "trainees" from employees.
- The training, even though it includes actual operation of the employer's facilities, is similar to what would be offered in a vocational school.
- The primary benefit of the training is for the intern.
- The trainees do not displace regular employees but work under close observation.
- The employer derives no immediate advantage from the activities of the interns, which on occasion might actually be counterproductive.
- The intern is not guaranteed a permanent job at the end of the program.
- Both parties understand that the intern is not entitled to wages for the time spent in the internship.
Who Benefits: Intern Or Company?
Courts weigh the six factors differently, but the central question is which party receives the primary benefit from the arrangement. If the intern receives most of the educational value, the position is more likely to be unpaid.
Conversely, if the company gains the principal benefit from the intern's work, the intern is likely an employee who must be paid at least the minimum wage.
Case example
In McLaughlin v. Ensley, a federal court found that trainees working on delivery routes were entitled to pay. Trainees spent about a week shadowing route employees, loading and unloading trucks, restocking stores, and sometimes handling orders and financial exchanges, while the employer did not pay them during that orientation.
The court concluded the employer received the greater advantage because the trainees materially helped distribute products and learned skills that had limited transferability, so the trainees were employees for wage purposes.
Ensuring FLSA Compliance
If you offer unpaid internships, structure the position so the intern receives the primary educational benefit, focusing on mentoring and career exposure rather than production work.
Document the relationship in writing, clearly stating that both parties intend the position to be an unpaid internship that provides practical learning experience, and ensure the intern’s duties match that documentation. For guidance on structuring programs and managing related risk, see Understanding Payment Obligations and Risk Management.
If you have questions about how an unpaid internship affects your broader operations or insurance needs, consider resources such as Understanding Payment Obligations and Insurance Options and, when appropriate, consult a broker or Exhibitors Insurance specialist.
For specific guidance or to review your situation with an insurance professional, talk to an agent.
The Bottom Line
Internships can be valuable for both the student and the employer, but unpaid positions must be designed so the intern is the primary beneficiary. Avoid using unpaid interns as a source of free labor, and keep clear written documentation of the internship’s educational purpose and duties.
When in doubt, structure the role around training and mentorship, pay trainees who provide productive value to the business, and retain records showing the program’s learning objectives and supervision.
Frequently Asked Questions
When must an intern be paid?
An intern must be paid if the employer receives the primary benefit from the intern’s work; if the position is primarily educational and benefits the intern, it may be unpaid.
What are key indicators of an unpaid internship?
Key indicators include a focus on training and mentoring, supervision by staff, no displacement of regular employees, and a lack of guaranteed employment at the end.
How should I document an unpaid internship?
Use a written agreement that describes learning objectives, supervision, duties that align with training goals, and a statement that the intern is not entitled to wages for the time spent.
Can an unpaid internship become a paid job?
Yes; many employers hire former interns into paid positions when both parties agree and when the role’s duties require employment status under wage laws.