By Michelle Lanter Smith

For-profit enterprises must adhere to federal regulations regarding interns under the FLSA (Fair Labor Standards Act). The Act requires for-profit employers to pay employees for duties they perform. Interns and students, in some cases, are considered employees, with the right to compensation and benefits like any other employee.

The U.S. Department of Labor 2018 standards are slightly less rigid than the former criteria for an unpaid internship. The earlier standards prohibited employers from gaining “an immediate advantage from the activities of the intern” – a standard that was close to impossible to meet. The current standards are more flexible.

2018 FLSA Standards

In 2018, for an intern to work without being compensated, the internship program must meet these updated standards. The criteria for an unpaid internship will be measured against the standards as set forth in the “primary beneficiary test.” Seven different factors will be evaluated to determine whether an intern should have been paid if a wage and hours claim is filed against an employer:

  1. Whether there was an express or implied promise that the job included compensation.
  2. If the training and education provided by your company is similar to what the intern could expect to receive in an educational environment.
  3. Whether the internship is one aspect of an integrated education program and resulted in academic credits.
  4. How the internship is structured to accommodate the educational goals of a student, and whether it has been established in coordination with the student’s academic calendar.
  5. Does the internship program and the activities associated with it, along with the duration of the program, provide beneficial learning in the intern’s field of study?
  6. Did the intern’s work complement the duties of employees – rather than take over duties of paid employees?
  7. The degree to which the intern, and the employer, both understand that the internship does (or does not) entitle the intern to the expectation of paid employment in the future.

FLSA Regulations and Interns: Making Decisions About Internships

This “primary beneficiary test” covers the factors that will be evaluated by the court when making a decision about whether an intern was legally unpaid or had the right to compensation and benefits as an employee. Business owners must evaluate these new FLSA rules regarding internships thoroughly before committing to offering any internship.

It is imperative that employers are very clear about what an intern should expect regarding paid employment in the future. Craft your internship program to be in alignment and coordination with the intern’s educational schedule. When these matters are correctly managed, a company can gain the benefits of the intern’s work, while the intern gains vital hands-on experience. An HR department most often manages the details of arranging a legal internship, including coordinating with the educational facility attended by the student. The essence of the new FLSA standards is that the primary beneficiary of an internship must be the student – not an employer.

Many small to medium-sized businesses don’t have the HR time and personnel needed to correctly manage an internship program or provide the ongoing monitoring to keep it on track to meet the standards imposed by FLSA.

Company owners who have concerns about the careful planning and coordination necessary to offer a legally unpaid internship may choose to pay minimum wage, rather than jumping through the hoops to meet the 2018 standards. Even with the most carefully crafted internship program, it is not uncommon for employers to be forced to pay the costs of defending a wage and hours claim – whether they win or lose in court.

Michelle Lanter Smith is the Chief Marketing Officer of EPAY Systems, where she oversees the company’s go-to-market strategy, customer success and technical support operations. Michelle brings 20+ years of leadership experience in driving revenue growth for high tech and service-driven firms. She graduated summa cum laude from Marquette University, where she earned her Bachelor of Science degree in Business Administration. She holds a Masters of Business Administration with distinction from Northwestern University’s Kellogg School of Management.