For many years, businesses counted on unpaid interns for a slew of free services, from making copies to making coffee, in exchange for allowing eager young students a first-hand glimpse at the careers they were studying. But a game-changing lawsuit filed in 2011 by a group of students interning at a New York film studio temporarily cooled the practice.
In that case, a federal district court judge ruled that, under the federal Fair Labor Standards Act (FLSA) and New York state law, the interns’ work (which far exceeded copies and coffee) on defendant Fox Searchlight’s $300 million-grossing film, Black Swan, made them employees, which entitled them to minimum wage and overtime pay.
Though the decision was later reversed in appeals court, the case brought about far-reaching change. Previously, the US Department of Labor used a six-factor test to identify unpaid interns. Now, they’ve scrapped that test in favor of the seven-point primary beneficiary test developed by New York’s Second Circuit appellate court to determine employee status under the FLSA:
- Is there any expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa?
- Does the internship provide training that would be similar to an educational or clinical environment?
- Is the internship tied to the intern’s formal education program by integrated coursework or academic credit?
- Does the internship correspond to the academic calendar?
- Is the internship’s duration limited to the period in which the internship provides beneficial learning?
- Does the intern’s work complement, rather than displace, the work of paid employees?
- Does intern understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship?
“Courts have described the primary beneficiary test as a flexible test, and no single factor is determinative,” the DOL writes in a fact sheet available on its website. “Accordingly, whether an intern or student is an employee under the FLSA necessarily depends on the unique circumstances of each case.”
An Apex HCM consultant can help assure that your client or company’s internship program is fully compliant with FLSA requirements.
While those seven rules help business determine whether they MUST pay interns, ApexHCM suggests seven reasons that smart businesses do it anyway:
- You’ll recruit the crème of the crop: College campuses are viral societies. When a business impresses one class of interns and their professors with its internship experience, word spreads quickly.
- You’ll get more choice: On internship search boards, paid positions garner 2.5 percent as many clicks as unpaid positions.
- You won’t miss out: Research shows that 65 percent of college students rely on financial assistance from their parents during their internships and 60 percent are forced to borrow money to cover school and living costs. Students need financial support and seek paid internships.
- They’ll be more productive: Research also shows that 61.4 percent of students need to work second jobs while working unpaid internships. Pay allows a student to give an internship their undivided attention.
- They’ll be on time: Speaking of classes and multiple jobs – when schedules tight, punctuality goes by the wayside. Paying interns makes it more likely they’ll drop that second job and show up on time.
- They’ll be more engaged: In one recent study, paid interns spent 42 percent of their time on professional tasks that afforded them true career training and just 25 percent on clerical and non-essential functions that offered little benefit. By comparison, unpaid interns spent just 30 percent of their time on professional tasks and 31 percent on clerical and non-essential functions.
- You’ll dodge a legal bullet: Make no mistake – Today’s college students are increasingly savvy about knowing and protecting their rights both on the job and in the courtroom. Avoiding a lawsuit is just one of the benefits that businesses reap when they pay interns fair wages.
Hiring interns involves a range of regulations that go far beyond financial compensation. Apex HCM can help businesses of all sizes make sure they’re in full compliance on all internship and employment issues including payroll, benefits, scheduling, time keeping and much more. Call 877-750-2739 or request a demo of any Apex HCM offering.