The Department of Labor (DOL) has recently released a statement adopting a “primary beneficiary” test to be used when determining whether an intern for a for-profit employer should be classified as an employee under the federal Fair Labor Standards Act (FLSA).
Under the FLSA, employers are required to pay employees for all hours worked subject to minimum wage and overtime requirements provided by the law. In some cases, however, interns or students may not be considered employees and therefore would not be required by law to receive compensation for the time spent performing their internship.
The “primary beneficiary” test determines which party benefits the most from the relationship. There are seven factors that are part of the test:
- The extent to which an 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.
- 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.
- The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
- The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
- The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
- 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.
- 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.
This test has been described by courts as a flexible test with no single factor having more importance than the others. Whether each intern or student is to be considered an employee under the FLSA may vary based on the unique circumstances of each case.
If analysis of the factors above reveal that an intern or student is an employee under the FLSA, then he or she is entitled to both minimum wage and overtime pay under the FLSA. Conversely, if the analysis finds that the intern or student should not be considered an employee, he or she is not entitled to either minimum wage or overtime pay under the FLSA.
To read the full Fact Sheet released by the DOL click here: Fact Sheet #71 – Internship Programs Under The Fair Labor Standards Act
If you are unsure whether your interns should be considered employees, you should seek advice from your tax professional to avoid potential penalties for misclassification.