January 19, 2018 | Category: Compliance, Employment, Minimum Wage

On January 5, 2018, the Department of Labor (DOL) announced a new test for determining whether interns are employees who must be paid in accordance with the Fair Labor Standards Act (FLSA).

The DOL adopted the primary beneficiary test for determining whether an intern is an employee under the FLSA. Previously, the DOL had used a six-factor test, which many courts had rejected in favor of the primary beneficiary test. The primary beneficiary test examines the economic reality of the intern-employer relationship to determine which party is the “primary beneficiary” of the relationship.

Under the primary beneficiary test, the following factors are considered. No single factor is determinative and there is no requirement that all seven factors be met.

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

If the majority of the benefits of the relationship (51% or more) go to the intern, he or she is the primary beneficiary and is not an employee subject to minimum wage and overtime under the FLSA. If the contrary is true, the intern must be paid pursuant to the FLSA as an employee.