If analysis of the circumstances reveals that an intern is actually an employee, then he or she is likely entitled to both the minimum wage and overtime compensation under the FLSA.  (Photo: Stock)

As the summer draws near, many companies are considering bringing on summer interns. Interns are students or trainees who work in an organization in order to gain work experience or satisfy educational requirements. An internship can, and hopefully will, benefit the company that uses such a program. For example, internships may provide a pool of potential new hires for the company, serve as a source of inexpensive labor, foster a positive public image, and build beneficial relationships with local communities and educational institutions. The question that always arises is: Does a company have to pay its summer interns? The short answer is: It depends on how you structure your intern program.

While state laws may vary on this subject, when it comes to the federal Fair Labor Standards Act (FLSA), in determining whether an unpaid internship passes muster, the U.S. Department of Labor (DOL) is most concerned with the purpose of the internship and who is benefiting from it. The primary issue, of course, is that, if the intern is actually an employee, he or she must be treated and paid like an employee (which would include the related requirements of tracking hours, receiving overtime, etc.)

When the DOL is trying to determine whether a company is properly classifying unpaid interns, it reviews the following factors under the “primary beneficiary test”:

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 the intern is an employee—and vice versa.
2. The extent to which the internship provides training that is 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 at the conclusion of the internship.

The primary beneficiary test is flexible—no single factor is determinative and whether an intern is an employee depends on the circumstances of each case. If analysis of the circumstances reveals that an intern is actually an employee, then he or she is likely entitled to both the minimum wage and overtime compensation under the FLSA. On the other hand, if the analysis confirms that the intern is not an employee, then he or she is not entitled to either the minimum wage or overtime pay under the FLSA.