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How should employers determine whether unpaid interns are entitled to compensation?

On January 5, 2018, the U.S. Department of Labor issued the new “Primary Beneficiary Test” to help employers determine whether unpaid interns should be classified as employees under the Fair Labor Standards Act.

The new test requires employers to consider these seven factors: 

  • Both parties understand that the intern is not entitled to compensation.
  • The internship provides training that would be given in an educational environment.
  • The intern’s completion of the program entitles him or her to academic credit.
  • The internship corresponds with the academic calendar.
  • The internship duration is limited to the period when the internship educates the intern.
  • The intern’s work complements rather than displaces the work of paid employees while providing significant educational benefits.
  • The intern and the employer understand that the internship is conducted without entitlement to a paid job at the internship’s end.

For each factor, employers must consider who is the primary beneficiary. The majority of the benefits must go to the intern in order for the internship to qualify as unpaid and for the intern to not be considered an employee. It is good practice to document this in a signed agreement.

The new test should provide more flexibility for employers. It takes into account the non-monetary benefits the internship may provide to the intern and could possibly increase the number of unpaid internships once again. However, employers should not disregard the rules altogether, as the litmus test for unpaid interns is still consequential.

If you need any assistance with employee classification, please contact us for support.

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