In the United States, companies offering paid internships are bound by certain legal responsibilities. These obligations are primarily governed by the Fair Labor Standards Act (FLSA), which mandates that “for-profit” employers must compensate their employees for their work. This includes interns if their role qualifies as a paid position.
Under the FLSA, interns who qualify as employees must be paid at least the federal minimum wage for the services they provide within the private sector. Additionally, these interns are entitled to overtime pay. The obligation to pay minimum wage and overtime is not applicable if the interns are not considered “employees” under the FLSA.
The determination of whether an intern qualifies as an employee under the FLSA depends on several factors. Courts often use the “primary beneficiary test” to make this determination. This test examines the economic reality of the intern-employer relationship to identify the primary beneficiary. Factors considered include the extent to which the intern and employer understand that there is no expectation of compensation, the extent to which the internship provides training similar to an educational environment, and the extent to which the intern’s work complements rather than displaces the work of paid employees, among others.
If the analysis reveals that the intern is indeed an employee, they are entitled to both minimum wage and overtime pay under the FLSA. Conversely, if the intern is not considered an employee, they are not entitled to either minimum wage or overtime pay.
It’s also important to note that while unpaid internships are still legal in many cases, they are increasingly viewed as exploitative. The Department of Labor outlines criteria for determining the legality of an internship. Therefore, it’s crucial for companies to carefully consider their options and finances before deciding to offer unpaid internships.