SHOULD YOU BE PAYING YOUR INTERN?

In early January the Trump Administration’s Department of Labor (DOL) eradicated an Obama-era DOL “six-part test” that was created to help companies falling under FLSA jurisdiction determine when they should pay their interns.

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The six-part test was outlined in 2010 in Fact Sheet #71, Internship Programs Under the Fair Labor Standards Act (published April 2010; updated January 2018 to reflect the change). The purpose of Fact Sheet 71 has always been to provide general information to help determine whether interns and students working for “for-profit” employers are entitled to minimum wages and overtime pay under the Fair Labor Standards Act (FLSA).

 Arguably, a fact sheet does not change the underlying law in the first place.  However, the original six-part test in Fact Sheet #71 began to appear in a series of court cases as legal support for wage disputes concerning minimum wage and overtime compensation for interns.

Coming back to present day… on January 5, 2018, the DOL announced that it was abolishing the six-part test guidance by releasing the following low-key statement posted on its website:

On Dec. 19, 2017, the U.S. Court of Appeals for the Ninth Circuit became the fourth federal appellate court to expressly reject the U.S. Department of Labor’s six-part test for determining whether interns and students are employees under the Fair Labor Standards Act (FLSA).

The Department of Labor today clarified that going forward, the Department will conform to these appellate court rulings by using the same “primary beneficiary” test that these courts use to determine whether interns are employees under the FLSA. The Wage and Hour Division will update its enforcement policies to align with recent case law, eliminate unnecessary confusion among the regulated community, and provide the Division’s investigators with increased flexibility to holistically analyze internships on a case-by-case basis.

So how do you know whether your intern or student is an employee under FLSA and should be paid? The answer is that the law of the land is the Primary Benefit Test, which means that the proper questions for employers to ask are: Who benefits most from this arrangement? Is the intern or the employer the primary beneficiary of the relationship? Fact Sheet #71 has also been updated as of January 2018 to include seven factors frequently considered by courts when applying the Primary Beneficiary Test, along with a statement that the Primary Beneficiary Test is intended to be “flexible” with no single factor being determinative. If you are interested…

...the Seven Factors are:

  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—and vice versa.

  2. The extent to which the internship provides training that would be 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.

Some groups are worried that discrediting the six-part test will result in employers taking advantage of young workers. However, other groups support removal of the original six factors because it gives businesses more flexibility and allows younger or newer workers to have more opportunities to develop new skills in the workplace.

 


**** This article is for educational purposes only and to provide a general understanding of the law, not to provide specific legal advice. By reading this blog post you understand that there is no attorney client relationship between you and TLA LAW. This blog or any article on the website should not be used as a substitute for obtaining competent personalized legal advice from a licensed attorney in your state.