Spring will soon draw to a close. As you prepare for the arrival of your summer interns, make sure you have asked yourself this question: Do I need to pay my interns?
The easiest answer is generally, YES! But the easiest answer is not the whole story, because you do not have to pay your interns in accordance with wage and hour laws if the company-intern relationship meets the federal (and state, as applicable) test.
The U.S. Department of Labor’s New Test
Earlier this year, the U.S. Department of Labor helped private businesses out. It announced that it would be using a new (more employer-friendly) test to determine whether an intern is an “employee” that must be paid in compliance with wage and hour laws. Whether an intern must be paid in compliance with federal wage and hour laws now depends on seven factors:
- The extent to which the intern and the company 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 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; and
- The extent to which the intern and the company understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
According to the DOL, “no single factor is determinative.” Thus, companies need to conduct a case-by-case analysis of each internship position to determine whether that intern should be paid.
I’m Located in California. Do I Need to Be Concerned About State Laws Controlling Wage and Hour Requirements?
Here, the clear answer is YES! For many years, the California Department of Labor Industrial Relations, Division of Labor Standards Enforcement (“DLSE”) has relied on the DOL’s old six-factor test. For now, California businesses should also look to the DOL’s old six-factor test to determine whether they need to pay their interns.
The DOL’s adoption of this new seven-factor test this year followed a decision in the Ninth Circuit (which covers California). In 2017, the federal Ninth Circuit Court of Appeals made a predictive statement, that the California Supreme Court would no longer use the old DOL test, and would instead apply a test more similar to the one set forth above. Benjamin v. B & H Educ., Inc., 877 F.3d 1139 (9th Cir. 2017). However, this statement is only predictive of what the federal court thinks the California courts would do, so it is not actually controlling law in California.
Thus, until the California state agencies and courts take a position on whether they will follow the Ninth Circuit and the DOL, companies should also check that they have considered the DLSE’s interns test to make their decision to pay (or not pay) interns. That requires an analysis under the DOL’s old six-factor test:
- The internship, even though it includes actual operation of the facilities of the company, is similar to training which would be 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 company that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
- The intern is not necessarily entitled to a job at the conclusion of the internship; and
- The company and the intern understand that the intern is not entitled to wages for the time spent in the internship.
If you have not examined your internship programs with these federal and state legal considerations in mind, you should do so immediately, before your summer interns arrive. Review your internship materials, including your recruitment postings, company policies, and any other documents you anticipate having the intern sign before starting the summer program.
Conkle, Kremer & Engel attorneys are experienced with counseling employers in the face of a constantly changing legal landscape in employment law, and with helping companies identify and reduce areas of exposure to liability for employment claims, including wage and hour, discrimination, harassment, and retaliation claims.