If you've already done the work to identify whether you can support a successful internship program, make sure you do your due diligence if you intend to make it an unpaid program. A company should ask whether the internship is primarily for the economic benefit of the company or for the educational benefit of the intern. If the internship is primarily for the economic benefit of the company, then the intern must be paid.

To help companies comply with federal labor laws, the United States Department of Labor has adopted a seven-factor test to determine the primary beneficiary of an internship at a for-profit company. No single factor is determinative and the answer is unique to the circumstances of each case. The factors are as follows:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation suggests that the intern is an employee, and compensation paid to employees must comply with wage and hour laws.
  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.

In addition to requirements under federal law, certain states have adopted unpaid internship laws that are stricter than the Department of Labor’s seven-factor primary beneficiary test. For example, California has a rigid six-factor test, under which it is more difficult to justify that an intern should be unpaid. In situations where a state has adopted its own laws and regulations around unpaid internships, we advise companies to comply with the stricter applicable standard in the jurisdiction where the intern is hired.

If your company is considering whether to hire an unpaid intern, you should work with counsel to ensure that the internship is designed in a manner that meets applicable federal and state labor law requirements.

Disclaimer: LTSE is neither a law firm nor provides legal advice. Before making decisions on matters covered by this post, readers should consult their legal adviser.

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