Given the tough job market and with summer approaching, many employers can expect college students, recent graduates and currently unemployed workers to seek out internships with their organizations.

Many employers do not realize that they, generally, must pay at least the minimum wage and overtime to their interns under federal and state regulations. In fact, some employers would be shocked to learn that their use of interns (aka trainees, assistants, or learners) for whom they provide little or no pay for the work performed may violate wage and hour laws. Employers who wish to employ unpaid interns must do so carefully to avoid exposure to legal and financial liability.

The federal Fair Labor Standards Act (FLSA) defines the term “employ” very broadly as “to suffer or permit to work.” Covered and non-exempt employees who are “suffered or permitted to work” must be compensated under law for the services they perform.  Internships in the “for-profit” private sector will most often be viewed as employment, unless certain criteria relating to training are met.  Accordingly, interns in the “for-profit” private sector who qualify as employees, rather than trainees, typically must be paid at least the minimum wage and overtime compensation for hours worked over forty in a workweek. (See U.S. Dept of Labor Wage and Hour Division Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act)

The Test for Unpaid Interns
There are some circumstances under which individuals who participate in “for-profit” private sector internships or training programs may do so without compensation.  The determination of whether an internship or training program meets this permitted exclusion to the general rule depends on all of the facts and circumstances of each such program.

The following six criteria must be applied in making this determination:

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

The Take-Away
Whether or not interns at a company are “employees” under the FLSA will depend upon all the circumstances surrounding their activities.  To the extent that an organization wishes to utilize unpaid interns, programs, policies and procedures should be developed which satisfy the above factors and which are tailored to the particular organization.