As your business grows, it’s inevitable that you’ll need extra help. And often, you’ll need this help before your business can really afford to hire extra help. Enter: Unpaid Internships. Your small business gets free labor, and the intern gains valuable experience for their resume and a good reference for later on down the road.
But like so many things, the law isn’t so simple. All employees are entitled to at least minimum wage under the Fair Labor Standards Act (FLSA), and the FLSA determines who is an employee (regardless of what you might call the worker). So, the question for you as a small business owner is whether or not your intern will be considered an “employee” under the FLSA.
7 Factor Primary Beneficiary Test
In determining whether someone is an employee, the law considers the following 7 factors to determine who the “primary beneficiary” of the relationship is:
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. Because of this, we don’t recommend offering interns “stipends.” Not only do they suggest that the intern is really an employee, but they also raise a question regarding whether the stipend was at least minimum wage when compared to the number of hours worked.
2. The extent to which the internship provides training that would be similar to what a student would receive in an educational setting.
3. The extent to which the internship is tied to coursework or academic credit.
4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the intern’s 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. This is especially tricky for small businesses who “hire” interns in lieu of hiring paid staff.
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. Using an internship as a trial run or probationary period before hiring a worker often doesn’t pass the “smell test.”
In theory, this test considers the “economic reality” of the relationship. It sounds simple enough—if the business is benefiting financially from a person’s labor, that person is probably an employee entitled to at least minimum wage. But in reality, every case turns on its own unique set of facts. And these factors apply, not just to disgruntled former interns, but even workers who weren’t paid for time spent in training, or interns who were asked to go above and beyond the educational portion of their internship and do other tasks that benefited the employer.
Reach out to our office if you have any questions about your specific situation.
