Pay Now or Pay Later: Can You Hire an Unpaid Intern?

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With summer here many companies plan to bring on summer interns who are home from college.  It’s not uncommon for interns to even approach you about working unpaid because they want the experience.  Regardless of the intent, the Department of Labor (DOL) regulates the paying of interns in the way it regulates the pay of all employees.

In January 2018 the DOL adopted a primary-beneficiary test which replaced the previous six factor test for for-profit employers.  This new test is more forgiving to employers as it looks at the totality of the circumstances, as opposed to requiring that each factor be met (as was the previous case). If you would like to hire an unpaid intern, the new test includes consideration of the extent to which:

  1. 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 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 internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

After applying the primary beneficiary test above, a company can determine if the person qualifies as an employee under the FLSA in which case the FLSA minimum wage and overtime requirements would apply. So the person would not be able to be hired as an unpaid-intern because they are considered an employee.

The practical reality under the old test was that it was almost impossible to have a legitimate unpaid intern.  While this new test does create an opportunity for an unpaid-intern, companies should still err on the side of paying interns, as in most cases these standards are difficult to achieve.

Hiring a summer intern at your company is a great way to give a college student or new professional real world experience while bringing a different perspective on site. Just ensure when hiring that you have assessed the risk and are compensating the student appropriately.