“Primary Beneficiary” Test Adopted as New Test For Interns
On January 5, 2018, the U. S. Department of Labor (DOL) announced in a press release that a new test would be used to determine whether interns and students working in “for-profit” companies are entitled to minimum wage and overtime pay under the Fair Labor Standards Act (FLSA).
Going forward, the DOL said it will no longer apply the six-factor test that had been used for years and the “primary-beneficiary” test, favored by a number of U.S. Courts of Appeals, will be adopted as the method to determine whether interns are employees under the FLSA. The “primary-beneficiary” test focuses more on the economic realities of the intern-employer relationship and examines, among other factors, which party is the primary beneficiary of the relationship.
In connection with the change, the DOL issued a new Fact Sheet (#71) on internship programs under the FLSA. The new test for interns will examine seven factors, with no single determining factor, to establish whether a worker is an unpaid intern or an employee. Analysis will be on a case-by-case basis.
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.
***Unpaid internships for public sector and non-profit charitable organizations, where the intern volunteers without the expectation of compensation, are generally permissible.