To Pay or Not To Pay Interns

Internships provide a great opportunity for learning about a job and getting practical experience. Employers can also use interns to help with certain tasks and establish a pipeline to attract top talent. When using interns, employers must decide whether to pay the intern like an employee or offer an unpaid internship.

When businesses have unpaid internships, they must comply with state and federal labor laws to make sure the intern is not considered an employee. If the law considers an intern to be an employee, the employer is liable for wage and hour violations. For legal advice about whether or not to pay interns, talk to a local employment lawyer.

Legal Implications of Paying Interns

The first step in determining whether or not it is legal to hire unpaid interns is to determine what laws apply. A combination of federal, state and local labor laws govern whether or not an employer must pay interns.

According the Camille Olson, an employment attorney at Seyfarth Shaw in Chicago, Illinois, a common mistake is only checking federal wage hour laws established in the FLSA. “You actually need to check all three — federal, state, and local laws. Over the last five years, some states and local municipalities such as cities have passed laws giving interns certain rights, whether or not they’re employees.”

In some states, such as New York, state and local laws have adopted language that is specific to interns. This gives certain rights to the intern, regardless of how one might interpret the broad language in the federal law. “Under the FLSA, employees must be paid for all hours worked, at least at the minimum wage rate,” Rachel Bien, an employment attorney at Olivier & Schreiber in Pasadena, California, says. “The issue for interns is whether or not they are considered employees who are covered by the law.”

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Labor Laws and Internship Compensation

The Fair Labor Standards Act (FLSA) is the federal labor law that applies to most employees across the country. The FLSA regulates minimum wage, overtime pay, and child labor laws. The U.S. Department of Labor (DOL) requires for-profit employers to compensate employees for their work.

Whether interns qualify as employees depends on the primary beneficiary test. If the primary beneficiary of the intern-employer relationship is the employer, the intern is generally an employee.

The Primary Benefit Test

According to the DOL, the primary beneficiary test involves seven factors. The factors to determine whether interns are to get compensation include:

1. Expectation of compensation
2. Training program elements of the internship are similar to those of an educational institution
3. Internship connection to a formal education program or receipt of academic credit
4. Internship accommodating academic commitments and academic calendar
5. Limited duration to a period of beneficial learning
6. Intern’s work complements and does not displace paid employee work
7. Understanding there is no entitlement to a paid job offer at the end of the internship

An unpaid internship program might be unlawful if the primary benefit test indicates the employer is the primary beneficiary of the work performed. If the intern is actually an employee, they can get minimum wage and overtime pay.

Example of Internships and Regular Employees

Olson illustrates this with an example of a magazine editor hiring an unpaid intern to write articles. The editor spends time with the interns, showing them how to draft articles and ideas. Together, they go out on an assignment to cover a story, and the editor asks all the interview questions. Back in the office, the editor gives detailed feedback to the interns as they write the first draft of the story.

In this situation, the primary benefit was for the intern to learn in an educational environment, with the editor, how to interview and write an article. If the intern is later given assignment after assignment to work on autonomously, this indicates the work may be for the primary benefit of the employer.

Bien, who has represented unpaid interns in various cases, says the subjective nature of the primary benefit test is problematic. “It really is, in my view, a departure from the typical standards you apply to evaluate issues under the FLSA,” Bien says. “From an employer’s standpoint, it’s hard to apply such a test to a whole lot of interns at once. I couldn’t imagine any employer that’s going to want to evaluate whether or not to pay someone intern by intern. It doesn’t make practical sense.”

However, the law is designed to protect internships that are truly education programs. Unpaid internships are for the primary benefit of the intern if the employer designs a summer internship with that in mind.

Legal Help With Work Experience and Internship Programs

Bien urges unpaid interns to look for any examples of a paid full-time employee doing the same work as them. “We saw a lot of that in the cases in the fashion industry, where when interns weren’t available, they’d hire freelancers and pay them to do the intern’s work. Those are important considerations in terms of whether or not someone is an employee.

“When an intern is working for a private employer and, for the most part, doing assignments as a part of their day-to-day business, that intern is going to most likely be an employee,” Bien continues. “For employers who are concerned about any grey area, the best practice is a paid internship with at least minimum wage, which is not a tremendous burden for most private employers.”

An unpaid intern should have a very clear understanding of what the internship program is and what it isn’t. “An employer should not communicate to the intern, ‘If you do well, you may get a job here.’ There should be no promise, or potential promise, of future employment,” Olson says. “There has to be an understanding that the internship is being performed without any entitlement or relationship to a future job. I would do that in writing to make that absolutely clear.”

Employers must comply with federal and state laws to properly categorize interns and employees. For legal advice on internship programs and whether to pay or not to pay, contact a local employment law attorney.

For more information about this area, see our overviews on employment law for employers and wage and hour laws.