To Pay or Not to Pay Interns

That is the question, and the answer is hard to find in a grey area of the law

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 laws govern whether or not an employer is required to pay interns. According the Camille Olson, an employment attorney at Seyfarth Shaw in Chicago, a common mistake is only checking the federal wage hour laws established in the FLSA.
“You actually need to check all three,” Olson says. “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 Outten & Golden in New York, says. “The issue for interns is whether or not they are considered employees who are covered by the law.”
Different interpretations exist regarding if an unpaid intern is really unlawfully unpaid employee or someone gaining valuable training and hands-on experience in their field.

The Primary Benefit Test

Some circuit courts have held that the primary benefit test applies under federal law and establishes that, at a minimum in every state, an unpaid internship must be designed to primarily benefit the intern. An unpaid internship might be found unlawful if the primary benefit test indicates that the employer was the primary beneficiary of the work being performed and therefore, the intern is really an employee.
Olson says the primary benefit comes down to the level of the intern’s autonomy and the nature of the assignments provided. Giving an unpaid intern work that is done by a regular employee is still appropriate “so long as there is a lot of coaching and on-the-job training that relate to the work performed on the assignment.”
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 with the belief that unpaid internships can be for the primary benefit of the intern if the employer designs the internship with that in mind.
Olson illustrates this with an example of a magazine editor hiring an unpaid intern to write articles. In this hypothetical, the editor spends time with the intern showing them how to draft articles and ideas. Together, they go out on assignment to cover a story and the editor asks all the interview questions. Back in the office, the editor gives detailed feedback to the intern as they write a first draft of the story. In these situations, the primary benefit was for the intern to learn, with the editor, how to interview and write an article. If the intern is instead being given assignment after assignment to work on autonomously, this indicates the work may be for the primary benefit of the employer.
Bien urges unpaid interns to look for any examples of a paid 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 same 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, I think, is to pay them 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 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.”  
For more information about this area, see our overviews on employment law for employers and wage and hour laws.

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