As summer hiring season approaches, many of our clients struggle with whether they can hire unpaid interns. Generally, the Fair Labor Standards Act requires for-profit companies to pay all employees for their work. However, for-profit companies can hire unpaid interns as long as the internship meets certain criteria.
Until this year, the test for unpaid internships was strict. Employers needed to satisfy all elements of a six-factor test, which looked at whether the internship was educational in nature, for the benefit of the intern rather than the employer, and not tied to a job offer at the end of the internship. Employers needed to satisfy all six factors and if any one element was not met, the internship could not be unpaid.
Earlier this month, the Department of Labor loosened the rules on unpaid internships. The new test involves similar factors, but the DOL now looks at the whole picture to determine whether an internship can be unpaid. No one factor is dispositive. The new factors are:
- The extent to which the intern and employer understand that the internship is unpaid;
- The extent to which the internship provides training similar to an educational environment, including clinical and other hands-on training;
- The extent to which the internship is tied to the intern’s formal education program by integrated coursework or 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 is limited in duration;
- The extent to which the intern’s work complements, rather than displaces, the work of paid employees;
- The extent to which the internship is conducted without entitlement to a paid job at the conclusion of the internship.
Importantly, the new test removes one of the most difficult factors to meet in the old test: whether the employer benefited from the intern’s work. Under the old test, employers could not receive an immediate benefit from the internship. The DOL has dropped this requirement in its new test.
Unpaid internships still must be primarily educational opportunities for interns, ideally operating in tandem with their academic program. But with these relaxed standards, companies have more flexibility to hire interns without fear of violating the FLSA.
As always, feel free to reach out to us if you have any concerns about whether your internship program is in compliance with the FLSA.