Interns in the “for-profit” business sector of the economy, who are classified as employees, are subject to the Fair Labor Standards Act (FLSA) and State minimum wage and overtime standards like any other employee.
In some situations, internships or training programs in the “for profit” business sector are unpaid. The Supreme Court’s definition of “suffer or permit to work” doesn’t apply to non-employee people who are working in an educational capacity.
The Six Principles
Look at these six principles to make a decision.
- The interns’ work is equal to the same training that would be given in an educational setting.
- The training the intern receives is for the benefit of the intern only.
- The intern does not replace other workers, the intern works under the close direction of current employees.
- The employer who hires the intern receives no clear return from the work of the intern. In fact, he may cause the employer other costs.
- The person is not promised a job at the end of the internship.
- The employer and the intern have a mutual understanding that there is no compensation for the labor or time expended by the intern.
If all the criteria are met, the employer-employee relationship standards don’t adhere to FLSA overtime rules. Minimum wages also doesn’t apply.
This exclusion is restrictive and hard to meet. It has recently been tested by the courts. A number of decisions have been in favor of the interns being employees and not unpaid interns, particularly for overtime.
Basically, it is easier to justify an unpaid internship if the internship focuses on academic experience rather than the employer’s work requirements. The skills learned during the internship should be broad in scope, not simply skills only applicable to the employer. The fact that the work assists the employer does not disqualify the work because as well as benefiting the employer, it is providing new skill sets or better working habits to the intern.
FLSA does not allow an employer to use an internship to avoid hiring additional paid employees or to replace previously paid employees. Also, typically, the intern needs more supervision than a standard worker. Otherwise, the internship is work, not training.
If an individual is an unpaid intern with an employer the intern is as an employee under FLSA. He is not as an unpaid intern. After the probationary period, there is a justifiable expectation that the intern would then be placed in a permanent position.
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Charles Read, CPA, USTCP, IRSAC
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