Summer is a popular time for hiring interns, but did you know that internships are most often considered ’employment’ subject to the federal minimum wage and overtime rules?
The Fair Labor Standards Act
Under the federal Fair Labor Standards Act (FLSA), non-exempt individuals who are ‘suffered or permitted’ to work must be compensated for the services they perform for an employer. Interns who qualify as employees typically must be paid at least the federal minimum wage of $7.25 per hour, as well as overtime compensation at a rate of not less than one and one-half times the regular rate of pay after 40 hours of work in a workweek. (Note that you may also be required to follow state laws which are more favorable to employees.)
Complying with the law is important; employers who fail to compensate their interns may be liable for back wages, penalties and sanctions.
The Test for Unpaid Interns
According to the U.S. Department of Labor (DOL), there are some circumstances under which individuals who participate in for-profit private sector internships or training programs may do so without compensation. This may apply to interns who receive training for their own educational benefit if the training meets certain criteria.
Whether interns must be paid depends upon all of the facts and circumstances of the internship program. The DOL uses the following 6 criteria which must be applied when making this determination:
- The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
- The internship experience is for the benefit of the intern;
- The intern does not displace regular employees, but works under close supervision of existing staff;
- The employer that provides the training derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded;
- The intern is not necessarily entitled to a job at the conclusion of the internship; and
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
If all of the factors listed above are met, an employment relationship likely does not exist under federal law, and the FLSA’s minimum wage and overtime provisions do not apply to the intern. This exclusion from the definition of employment is necessarily quite narrow because the FLSA’s definition of ’employ’ is very broad.
If you have any other questions, feel free to contact us at Execupay at any time, we’re experts.