Finance News & Insights

DOL’s new test makes it easier for you to offer unpaid internships

The feds just gave employers more incentive to offer internship programs.

In a new Field Assistance Bulletin by its Wage-and-Hour Division, the DOL announced it’ll be dropping the more-comprehensive “six-factor test” for determining whether an intern qualifies as an employee entitled to at least minimum wage and overtime payments under the FLSA.

Under the six-factor test, the DOL considered all interns to be employees unless each of the very strict factors in the test were met. As a result, companies generally had to make their internship program paid to avoid running afoul of the FLSA.

In its place, the DOL is adopting what industry experts are calling a more employer-friendly “primary beneficiary” test.

Why the change? Because an increasing number of federal courts rejected the six-factor test in favor of the primary beneficiary test, a test laid out in Glatt v. Searchlight Pictures.

Specifically, the agency said the primary beneficiary test is being added to:

 “align with recent case law, eliminate unnecessary confusion among the regulated community, and provide [its] investigators with increased flexibility to holistically analyze internships on a case-by-case basis.”

Who benefits most?

In a nutshell, the primary beneficiary test requires employers to consider a non-exhaustive list of factors to determine whether the intern or the employer is the primary beneficiary of the internship. If it’s the latter, the internship must be paid.

The list of factors used by courts — and cited by the DOL in its most recent Fact Sheet on internships under the FLSA — to determine the status of the internship include:

  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.

Unlike the six-factor test, every factor in the primary beneficiary test does not need to be met in order for an internship to be legally unpaid under the FLSA. The factors are simply meant to be taken together to help determine the primary beneficiary of the relationship.

Plus, because the list is non-exhaustive, courts may consider additional factors if they are relevant to the situation.

 

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