Interns: To Pay or Not To Pay

Last year, we warned employers about the risk of hiring unpaid interns. This risk is still a very relevant issue, and more recently, the circuit courts have provided new factors to consider, in addition to the DOL’s existing six factor test.

The new factors, also known as the Primary Beneficiary Test, include seven factors that take a hard look at what the intern receives in exchange for their work. Here are the seven factors of the Primary Beneficiary Test to consider:

  1. The extent to which the intern and the employer understand that there is no expectation of compensation.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment.
  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.

For each factor listed here, fulfilling each to the furthest extent possible would be the safest and most conservative route for employing an unpaid intern without incurring a wage and hour claim. In light of the rulings on recent cases, it is important for employers to keep these factors, as well as the DOL Six Factor Test in mind when implementing internship programs.

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So, before bringing on an UNPAID intern, ask yourself these important questions:

  1. Does the company have the time and resources to supervise and manage this program to ensure that interns are not doing work that is outside of the outlined program?
    • Are your managers well trained and aware of how to supervise interns and manage the program?
  2. Are you providing more training, supervision and structure to the interns than you would to other employees?
  3. Is the company benefiting from the intern?
  4. Is the intern receiving educational experience?
  5. Has the company provided a written agreement outlining the internship arrangement?

But what about a paid intern?

Nervous looking man carrying tray of mugs (Image Source /via Getty Images)

If there are any doubts that your intern program meets the requirements outlined above, the safest route would be to pay your interns (at least minimum wage).  With that being said, there are still some important things to keep in mind with paid interns:

ACA Requirements

{Note: As of May 2017, these ACA requirements still stand, however, changes will likely be coming to these requirements in the future. We will be sure to update our blog when that happens.}

  • When counting employees to determine if you are an ALE (Applicable Large Employer) you must include all employees, including paid interns (unless they are considered seasonal employees). For smaller companies with a large intern program, this could be the difference in having to comply with the ACA’s Pay or Play provisions.
  • Your company will not be considered an ALE if your interns are Seasonal Employees and the following guidelines are met:
    • Your company has 50 Full Time Employees (including equivalents) for 120 days or fewer during a calendar year
    • The employees who are in excess of 50 are Seasonal Employees (interns), who work no more than 120 days in a year and perform services on a seasonal basis
  • Depending on the length of the internship and the “look-back measurement” period that your company has established, you may have to offer benefits to paid interns who are working full time (30 hours per week).

Unemployment

  • While you can set the expectation for the length of the internship, if the paid intern works for you for long enough to meet the eligibility requirements (this would vary by state law) then he/she may be eligible to receive unemployment benefits when the internship ends.

Paid Sick Leave

  • If you are in a state or city that requires Paid Sick Leave, your interns may be eligible depending on their length of employment and number of hours worked.
  • Many states require employers to provide paid sick leave to employees regardless of their classification as full time, part time, intern, etc.

So, as always with HR topics, it’s potentially complicated. If you have any questions as to whether an internship is putting your company at risk, you can contact us for help getting answers.

Happy internship season!