In January, the U.S. Department of Labor (DOL) announced that it would adopt a new standard for determining whether interns and students are “employees” who must receive pay under the Fair Labor Standards Act (FLSA).
The DOL clarified it would abandon its six-part test and adopt the “primary beneficiary” test used by federal courts. The six-part test says an intern at a for-profit company is an employee unless six factors are met. By contrast, the primary beneficiary test has a more flexible approach. It focuses on whether the intern or the business benefits more from the relationship.
The Old Six-Part Test
The benefit test is very specific and allows for interns to be unpaid if the following factors are met:
— The internship, even though it includes actual operation of the facilities of the employer, is similar to training given in an educational environment.
— The internship experience is for the benefit of the intern.
— The intern does not displace regular employees, but works under close supervision of existing staff.
— The employer that provides the training derives no immediate advantage from the activities of the intern; and, on occasion, impedes their operations.
— The intern's not necessarily entitled to a job at the conclusion of the internship.
— The employer and the intern understand that the intern's not entitled to wages for the time in the internship.
The Primary Beneficiary Test
The primary beneficiary test looks at the “economic reality” nature of the employment relationship and includes seven factors to consider. However, unlike the six-part test, these factors provide only a reference frame to determine who is benefiting more from the intern-employer relationship.
The seven factors are:
— 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.
— The extent to which the internship provides training that would be similar to that given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
— The extent to which the internship's tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
— The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
— The extent to which the internships duration's limited to the period in which the internship provides the intern with beneficial learning.
— 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.
— The extent to which the intern and the employer understand that the internship's conducted without entitlement to a paid job at the conclusion of the internship.
Employers don't need to meet every factor, and also different considerations go with different factors. Instead, the courts will consider these seven factors and evaluate whether, in the totality of the circumstances, the employer is benefiting more from the relationship than the intern is.
When an employer is the primary beneficiary of the relationship, the intern is an employee for purposes of the FLSA. When the intern is the primary beneficiary, he or she is not an employee under the FLSA.
Action Steps
— Employers should review how the primary beneficiary test applies to interns at their organizations. The DOL has provided an updated fact sheet for employers to use.
— Employers should also make sure that any unpaid intern programs primarily benefit their interns and not the company.
Have questions regarding this newsletter or or other employee benefits matters? Then, Contact a Plexus client service team representative in Deer Park, Ill. (847.307.6100), Chicago (312.606.4800), Dallas (972.770.5010), or Oklahoma City (405.840.3033). We’re here to help – and we’re happy to help.
Disclaimer and publishing credit: This Compliance Bulletin is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. © 2018 Zywave, Inc. All rights reserved.