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Jan 11, 2018

Last week the U.S. Department of Labor announced it was changing its test for whether a company needs to pay its interns.

Before we get to the new test, let’s take a step back.

The Fair Labor Standards Act is a federal law that requires covered employers to pay non-exempt employees at least minimum wage ($7.25/hr) and time-and-a-half when they work more than 40 hours in a workweek. An intern is not an employee. Consequently, companies to do not need to pay interns anything.

What was an intern?

Until Friday, the DOL considered someone to be an intern if he or she satisfied each of the following criteria:

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. The employer that provides the training derives no immediate advantage from the activities of the intern, and on occasion, its operations may actually be impeded;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

What is an intern now?

On Friday, the DOL “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.”

What is the primary beneficiary test? I’ll allow the DOL to explain, from its new fact sheet:

Courts have used the “primary beneficiary test” to determine whether an intern or student is, in fact, an employee under the FLSA. In short, this test allows courts to examine the “economic reality” of the intern-employer relationship to determine which party is the “primary beneficiary” of the relationship. Courts have identified the following seven factors as part of the 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 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.

Unlike the previous 6-factor rubric, the “primary beneficiary test” is flexible. Conceivably you could check less than seven boxes and still have an intern, rather than an employee.

Now, I see you.

I see you twisting your handlebar mustache, Sally, thinking about how you’re going to save the company money by firing half of your employees and replacing them with “interns.” Just remember that even though the “primary beneficiary test” isn’t as rigid as the previous 6-factor test, it’s still a test and your mileage may vary.

Or, you could live dangerously. I’m not recommending this.

I’m just saying the reckless companies — especially the ones with lots of money and principles — well, we employment lawyers like them.

This article first appeared on The Employer Handbook.

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