As the summer draws near, many companies are considering bringing on summer interns. Interns are students or trainees who work in an organization in order to gain work experience or satisfy educational requirements. An internship can, and hopefully will, benefit the company that uses such a program. For example, internships may provide a pool of potential new hires for the company, serve as a source of inexpensive labor, foster a positive public image, and build beneficial relationships with local communities and educational institutions. The question that always arises is: Does a company have to pay its summer interns? The short answer is: It depends on how you structure your intern program.

While state laws may vary on this subject, when it comes to the federal Fair Labor Standards Act (FLSA), in determining whether an unpaid internship passes muster, the U.S. Department of Labor (DOL) is most concerned with the purpose of the internship and who is benefiting from it. The primary issue, of course, is that, if the intern is actually an employee, he or she must be treated and paid like an employee (which would include the related requirements of tracking hours, receiving overtime, etc.)

When the DOL is trying to determine whether a company is properly classifying unpaid interns, it reviews the following factors under the “primary beneficiary test”:

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 the intern is an employee—and vice versa.
The extent to which the internship provides training that is similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
The extent to which the internship is 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 internship's duration is 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 is conducted without entitlement to a paid job at the conclusion of the internship.

The primary beneficiary test is flexible—no single factor is determinative and whether an intern is an employee depends on the circumstances of each case. If analysis of the circumstances reveals that an intern is actually an employee, then he or she is likely entitled to both the minimum wage and overtime compensation under the FLSA. On the other hand, if the analysis confirms that the intern is not an employee, then he or she is not entitled to either the minimum wage or overtime pay under the FLSA.

Companies must be careful as to how they identify their workers, as misclassification may lead to assessments of back wages, unpaid overtime and damages. In addition, the FLSA has restrictions on the use of child labor, which could come into play when reviewing intern ranks. Companies should consider taking the following steps as they bring on interns this summer:

Have a clearly written agreement in place with the intern stating there is no expectation of compensation, that the intern is receiving school credits (if applicable), the duration of the internship, the expectations for the internship, what the company expects the intern to learn from the position, that the internship is not a guarantee of future employment, and other relevant terms.
Ensure the intern is not displacing a regular employee.
Verify that the intern will benefit from the relationship more than the company will.
Permit the intern to shadow employees, assist in their tasks, and attend trainings and meetings to observe company operations—even if these activities do not further the operations of the company.
Conduct regular feedback sessions and provide instruction and guidance to the intern. Ask interns for feedback, suggestions, and what they would like to learn and do. For example, if the internship is tied to an educational degree program, ensure the intern is learning what he or she needs to in order to further the relevant educational goals.
Consider having a designated mentor for the intern who ensures the intern is engaged and receives educational opportunities throughout the summer.

Interns can benefit your company in many ways but remember an intern is not just free labor—you need to do your part to make sure the internship is truly meeting the DOL's requirements.

Good luck and have a great summer!

Deepa Subramanian is a shareholder at Ogletree Deakins and represents employers in all aspects of employment law, including employment litigation and counseling. She also advises and defends clients in federal and state employment-related lawsuits, including actions alleging discrimination, harassment, retaliation, violations of wage and hour law, and breach of contract.

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