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Internships Raise Wage and Hour Risks for Employers

April 16, 2013

Student internships are increasingly popular. While internships generally benefit employers and interns alike, there is uncertainty regarding whether internships may be paid or unpaid. The answer to this question depends on whether the internship falls under the “learner/trainee” exemption to the payment of minimum wages and overtime rules under the federal Fair Labor Standards Act (“FLSA”). If the internship falls under the exemption, then it may be unpaid. If it does not, the employer must pay the intern in accordance with federal and state minimum wage laws. A failure to do so could result in significant liability to the employer.

The U.S. Department of Labor (the “DOL”) has set forth a set of six factors to use in determining whether an unpaid internship at a private-sector, for-profit business comes within the “learner/trainee” exemption, and thus whether the intern must be paid. The internship must meet each of the six factors in order to come within the exemption. The DOL has stated that the most important factor is whether the internship is primarily for the intern’s benefit rather than for the employer’s benefit. Under the DOL’s analysis, an internship is much more likely to be considered exempt if the intern does things that increase his or her skill set, as opposed to clerical tasks. Note that this test applies to for-profit businesses only; non-profits may generally maintain unpaid internships.

The DOL’s six factors are:

  1. The training is similar to what would be provided in a vocational school or educational institution.
  2. The training is for the benefit of the intern.
  3. The intern does not displace any regular employees, but works under their close observation.
  4. The employer derives no immediate advantage from the intern (and on occasion its operations may actually be impeded).
  5. The intern is not necessarily entitled to a job at the conclusion of the internship.
  6. Both the employer and the intern understand that the internship is unpaid.

Interns who do not meet this test are not permitted to work without pay—no matter how much of an intangible benefit the intern might receive.  Employers whose internships do meet the DOL test should consider creating a document evidencing that the internship meets the DOL’s criteria.

For more information on this topic, please contact a member of the Employment Practice Group.

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