The new adopted standards on when interns are entitled to minimum wage (or not) by the Department of Labor are not exactly new law. It merely adopts what has been a growing trend of Federal Appellate Courts outright rejecting the previous standard adopted by the Department of Labor. Like other federal legal tests for your business, there is a multi-factor test to pass that makes up what is called the "primary beneficiary" test.
In short, this test allows courts to examine the “economic reality” of the intern-employer relationship to determine which party is the “primary beneficiary” of the relationship. Courts have identified the following seven factors as part of the test:
- Does the intern expect to be paid? 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.
- Does the intern get training similar to an educational environment? 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.
- How involved is the intern's school? The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
- Does the internship give flexibility with consideration of the academic schedule? The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
- Does the internship last too long? The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
- Does the intern replace paid workers or complements them? 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.
- Is there a paid job guaranteed at end of internship? 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.
Though this is intended to make things more clear and uniform, this may make things even more confusing to business owners who just need to know whether they have to pay those interns. Though not one factor will be determinative, the easiest way to approach the matter is by considering if this new intern you are about to hire is being brought in because you just need some cheap (or free) labor or is there really some true synergy where you have some needs for extra help but you do not mind providing a little hands-on training to a student eager to get their foot in the door.
In other words, if you are using your internship program to mill through a talent pool or in lieu of hiring essential personnel–think twice.
One more thing, just to make things a little more difficult, remember this new adopted standard does not automatically apply to your state…*cough* *cough*… California and others.