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DOL Adopts New Seven-Factor Test for Internships under the Fair Labor Standards Act

Compliance
Article
01/30/2018
  • The DOL has issued a new Fact Sheet #71 supporting a shift in enforcement policies related to the determination of whether an internship in the “for-profit” sector could be unpaid.
  • The new “primary beneficiary standard” used by several federal courts and now adopted by the DOL includes seven factors to help employers determine whether an intern at a for-profit business is considered an employee under the Fair Labor Standards Act.
  • The new standard may make it easier for for-profit employers to create unpaid internships in compliance with federal wage and hour law.

On Jan. 5, 2018, the U.S. Department of Labor (DOL) announced it would update enforcement policies related to its test for determining whether unpaid interns and students are employees at for-profit businesses under the Fair Labor Standards Act, the federal law governing covered employers on issues related to minimum wage, overtime, recordkeeping, and child labor. This follows a decision by the U.S. Court of Appeals Ninth Circuit Court, the most recent court to reject the DOL’s prior six-factor test.

The now-abandoned six-factor test required that all criteria under the test be met for an internship to be unpaid. Criteria included, in part, that the internship mirror the type of instruction received in a classroom setting, the experience was for the benefit of the intern, and the internship did not displace regular employees. Additionally, the business providing the internship could not derive any immediate advantage from the activities of the intern.

This most recent court decision follows several other federal and appellate court decisions that rejected the six-factor DOL test in favor of a “primary beneficiary standard," now adopted by the DOL. The new standard has seven factors (see below) for employers to consider when determining whether an intern at a for-profit business is an employee under the FLSA. No single factor is determinative but rather the determination will be entirely dependent on the circumstances of each case.

  1. 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.
  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.

As the DOL stated in its press release, “The Wage and Hour Division will update its enforcement policies to align with recent case law, eliminate unnecessary confusion among the regulated community, and provide the Division’s investigators with increased flexibility to holistically analyze internships on a case-by-case basis.” If it’s determined that an intern or student is an employee under the Fair Labor Standards Act, then they are entitled to both minimum wage and overtime pay.

The DOL’s adoption of the “primary beneficiary” test could be good news for employers who are able to create internships within the new framework. Employers are reminded to consider that the new guidance is based on federal law and enforcement policies only, and a careful assessment of applicable state and local laws should be conducted prior to establishing and/or continuing unpaid internships. Employers are also encouraged to review any existing internship programs and supporting agreements, and adjust accordingly for continued compliance.

Tammy Tyler

Tammy Tyler is a senior compliance analyst with a focus on employment law at Paychex, Inc., a leading provider of integrated solutions for payroll, HR, retirement, and insurance services.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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