FLSA Deadly Sin #6: Not Compensating Interns

Not Compensating Interns or Volunteers Appropriately

Hiring an unpaid intern or volunteer? Learn the law.

Meet Our Experts

Attorney Mark S. Goldstein from Reed Smith, LLP.

Mark S. Goldstein

Reed Smith, LLP

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Attorney James R. Mulroy from Jackson Lewis.

Jonathan M. Young

Greenberg Traurig, LLP

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Attorney James R. Mulroy from Jackson Lewis.

James R. Mulroy

Jackson Lewis

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Labor and Employment Attorney Charles A. Rudgel.

Charles A. Krugel

Labor & Employment Attorney

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You just hired an intern … do you have to pay them?

“That’s the beauty of interns!” you might be thinking. “They work for free!” But the FLSA might disagree.

As more and more student interns enter the job market (a by-product of society’s relatively new decision that no college degree is complete without an internship), the number of FLSA violations concerning the payment of interns and volunteers has spiked – and the two are directly correlated.

The fact of the matter is, many interns deserve to be paid – if they’re benefiting your company in any way, shape, or form (more than they’re benefiting their own education), they’re most likely entitled to compensation. So, if you’re attempting to use your intern for free labor, you could be guilty of committing our sixth deadly sin: Not Compensating Interns or Volunteers Appropriately.

The truth is, there are strict guidelines that must be followed when it comes to hiring an intern or volunteer – and even stricter guidelines when it comes to compensating them correctly. As with most FLSA regulations, it can be a tricky path to navigate – it all depends on the intern or volunteer’s age, responsibilities, and the number of hours they work (among many others) – which is why we reached out to the nation’s top employment experts to get the answers to your toughest questions.

What’s the difference between an intern and a volunteer?

Attorney Mark S. Goldstein from Reed Smith, LLP.
“In its simplest form, the FLSA governs the way that businesses pay their employees. While most US workers are considered “employees” within the meaning of the FLSA and must therefore be compensated for their work, there are some limited exceptions to this rule, including for interns and volunteers. These exceptions are important because if a particular intern or volunteer is not considered an employee under the FLSA, then he or she is not entitled to minimum wage and overtime compensation as would otherwise be required by federal law.”

At what point does an intern need to be paid?

Attorney Mark S. Goldstein from Reed Smith, LLP.
“According to Fact Sheet #71, employers must classify and pay interns as if they were employees unless the employer-intern relationship meets every one of the following six criteria:
  • The internship is similar to training given in an educational environment
  • The internship experience is for the benefit of the intern
  • The intern does not displace or supplant regular employees, or perform duties traditionally rendered by regular employees
  • The employer derives no immediate advantage from the intern’s activities (ideally, the intern impedes the employer’s operations)
  • The intern is not necessarily entitled to a job at the conclusion of the internship
  • The employer and the intern understand, preferably in a signed writing, that the intern is not entitled to receive remuneration for his/her work
According to the DOL, if the internship does not satisfy all six of these criteria, the employer must pay and treat its interns as if the interns were regular employees.”
“In the wake of the DOL’s publication of Fact Sheet #71, unpaid interns inundated federal and state court dockets claiming violations of the FLSA and other applicable minimum wage and overtime laws. Several such lawsuits already have resulted in important decisions regarding the circumstances under which companies must pay their interns. One such decision was issued by the Second Circuit Court of Appeals – which covers New York, Connecticut, and Vermont – last summer (and was amended in January 2016).”
“In that decision, the federal appeals court rejected the DOL’s six-factor test, ruling that the agency’s test is too rigid. Instead, the Court of Appeals adopted the “primary beneficiary” test urged by the defendants to determine an intern’s employment status. Under this malleable standard, an employment relationship is created when the benefits provided to the intern are greater than the intern’s contribution to the business’s operations. As the Court explained, this ‘requires courts to weigh a diverse set of benefits to the intern against an equally diverse set of benefits received by the employer without specifying the relevance of particular facts.’ To assist with this balancing act, the Second Circuit identified seven non-exhaustive factors that courts should consider in determining whether a worker is an employee or an intern under the “primary beneficiary” test. These factors include the extent to which the internship provides training that would be similar to that which would be given in an educational environment, and the extent to which the internship is tied to the intern’s formal education program. The Court nevertheless made clear that other relevant evidence may be considered in determining an intern’s employment status, and no one single factor is dispositive.”
“If the employer would have hired additional employees or had their staff been expected to work additional hours had the employer not used interns, the interns should be paid under the FLSA”
Attorney James R. Mulroy from Jackson Lewis.

Jonathan M. Young

“First, as a best practice, internships should be of a fixed duration which is established prior to the start of the internship. Unpaid interns should not be used in lieu of regular workers or to augment an employer’s workforce during specific periods (e.g., holidays, summers, etc.). ”
“Although the FLSA broadly defines employment, and the DOL views most private sector interns as employees, there are some circumstances where an intern may work without compensation. The Supreme Court of the United States has held that the phrase “suffer or permit to work” does not include a person that serves only their own interest as an employee of another who provides aid or instruction. In other words, interns that receive training only for their own educational benefit could be exempt from the FLSA rules regarding compensation.”
“Generally, the more the intern’s work is dedicated to a classroom, academic, or training experience (e.g., if the internship is done in conjunction with the intern’s school or the intern receives academic credit), the more likely the intern will be seen as exempt from the FLSA. If the intern routinely contributes to the business’s actual operations, or the business is dependent on the intern, it is more likely that the intern will be subject to the FLSA.”
“Employers should be advised that the preceding information applies only to the FLSA. Many states and municipalities have their own tests that control employment determinations of interns.”,
Attorney James R. Mulroy from Jackson Lewis.
“If the intern replaces or augments the work of an existing or prior employee, the benefit of the internship starts to appear to benefit the employer rather than the employee and if the internship is not tied to specific curriculum or training goals the internship looks more like work subject to wage and hour laws not educational training. Notably, a toll free DOL hotline dedicated to interns has been adopted to report suspected violations.”

Key Takeaway

There are strict (some argue “too strict”) guidelines determining whether or not an intern deserves to be paid — but, as a rule of thumb, you should ask yourself, “Who is receiving the primary benefit of this internship?” If the answer is not, “the intern,” you should probably be paying them. As always, check with your employment counsel for the correct course of action.

The FLSA exempts individuals who volunteer their services to public agencies only. For profit companies must pay volunteers.

At what point does a volunteer need to be paid?

Attorney Mark S. Goldstein from Reed Smith, LLP.
“The FLSA exempts individuals who volunteer their services to public agencies from the definition of “employee,” so long as:
  • the individual does not receive, nor expect to receive, any compensation in consideration for his/her services (although the individual may collect paid expenses, reasonable benefits, or a nominal fee)
  • the individual possesses a civic, charitable, or humanitarian purpose for providing the services
  • the services are provided without pressure or coercion
  • the services rendered are not the same type of services rendered by the individual in his/her capacity as an employee of the same entity
“This exception only covers public sector employees.
In addition, the US Department of Labor has taken the position that individuals may, under certain circumstances, lawfully volunteer their time, typically on a part-time basis, to a religious, charitable, or similar non-profit organization, so long as there is no expectation of compensation. Nevertheless, successful lawsuits have been brought against non-profit organizations for misclassification of employees as volunteers. In a similar vein, the Department of Labor generally does not consider individuals who volunteer to work on commercial activities operated by nonprofits as true volunteers in the eyes of the law. Further, according to the Department of Labor, individuals may not volunteer their services to private, for-profit businesses.”
Attorney James R. Mulroy from Jackson Lewis.
“Volunteers can only be used in the nonprofit sector. For profit employers are expected to pay for work and cannot use volunteers. Charitable organizations should also examine whether or not its volunteers are actually employees. If the volunteer is doing something normally associated with a business rather than ministering to the needs of the people being served , then a red flag is raised as to the potential that the wage and hour laws apply. If the volunteer is receiving some tangible benefit for volunteering this may be evidence that the volunteer is actually an employee rather than a volunteer. In addition employees of a charity may not “volunteer” to do work which is the same type work which they typically do for pay. If it appears a volunteer to a charitable organization is actually doing the work of an employee unrelated to the direct services to the clientele of the charity or receives a tangible benefit for the work then a suspicion is raised that the volunteer is actually an employee. A volunteer's expense may be paid by the employer without fear of losing the FLSA exemption.”

Key Takeaway

Volunteers are just that: volunteers — they volunteer their services to public agencies without the expectation of payment. There are a few key guidelines that help define whether or not you’ve got a volunteer on your hands, but, when in doubt, it’s best to check with your employment counsel.

Are there restrictions on how many hours an intern or volunteer can work?

Attorney James R. Mulroy from Jackson Lewis.
“There are restrictions on the hours that a minor may work. These vary by state.”
Labor and Employment Attorney Charles A. Rudgel.
“I'm not aware of any, but every state is different. There's definitely no federal law. However, as a general rule, it's a good idea to not have them work more than 40 hours in a workweek.”

Key Takeaway

There are no restrictions on the number of hours and intern or volunteer can work (unless they are a minor), but it's wise to keep their weekly hours under 40.

Do minimum wage rules apply to interns?

Attorney James R. Mulroy from Jackson Lewis.
“If they do not meet the criteria for being a volunteer or unpaid intern, both the minimum wage laws and overtime laws apply.”
Labor and Employment Attorney Charles A. Rudgel.
“Not yet, but this seems to be the direction we're heading in on both state and federal levels. There's much greater scrutiny being placed on unpaid and low paying internships. It's possible that either Congress or the President may try to pass something regulating the usage and payment of interns this year.”

Key Takeaway

If the intern falls into the category of "paid intern," minimum wage laws apply.

Do overtime rules apply to interns?

Attorney James R. Mulroy from Jackson Lewis.
“The Fair Labor Standards Act broadly defines the term “employment]” as including to “suffer or permit to work.” Covered and non-exempt workers who are “suffer[ed] or permitted to work” must be compensated for all work that they perform for their employers. The United States Department of Labor, generally speaking, views interns in the “for profit” private sector as employees rather than as trainees. These interns must therefore be paid at least the minimum wage and overtime compensation if they work more than forty (40) hours in a workweek.”
Attorney James R. Mulroy from Jackson Lewis.
“A properly classified intern or volunteer need not be paid overtime. If the six criteria set out above are not met the intern is probably an employee and must be paid.”

Key Takeaway

If the intern falls into the category of "paid intern," overtime laws apply. If they are unpaid, they need not be paid overtime.

What are the most common mistakes employers make when it comes to hiring interns or volunteers?

The most common mistake is assuming that by labeling an individual an intern or volunteer and the individual agrees not to be paid that the employer is not obligated to comply with the wage and hour laws. This is not the case.
Attorney James R. Mulroy from Jackson Lewis.

James R. Mulroy

“The Department of Labor and the courts will look at what the actual assignment entails, whether the hiring appears to be a move to replace wage earners and the primary benefit test to determine whether or not the wage and hour laws apply. Notably, there are other obligations which also might attach if these individuals are determined to be employees such as the employer's responsibilities to pay withholding taxes. A second major problem is not properly supervising an intern program. Some employers simply drop interns off to a group manager with no instruction. The manager then assigns the intern tasks and errands which typically offer no educational benefit. If an employer adopts an internship program, it must train its managers how interns are to be used and not simply place them in a “goffer” status.”
Labor and Employment Attorney Charles A. Rudgel.
“Treating them too much like employees. Generally, interns and volunteers aren't supposed to take away work from regular employees, and too often, that's exactly what happens. This is one reason why there's greater scrutiny being placed on internship programs. Another mistake is giving interns and volunteers too much access to private or confidential information.”

Key Takeaway

Don't confuse your interns with employees — they are there for a purely educational benefit. They are not intended to take work away from regular employees, and should be excluded from private company information.

What steps can employers take to ensure they are complying with intern or volunteer regulations?

Attorney Mark S. Goldstein from Reed Smith, LLP.
“Beyond just federal law, state and local laws must also be considered when hiring interns and volunteers. For example, the New York Department of Labor has identified 11 factors – five more than the US Department of Labor – that a business must consider in determining an intern’s employment status. Accordingly, employers, especially private, for-profit employers, must familiarize themselves with the applicable state and local law before implementing volunteer and unpaid internship programs.”
Attorney James R. Mulroy from Jackson Lewis.
“The Federal wage and hour laws are complex involving statutes, regulations as well as administrative and court decisions. The U.S. Department of Labor website is a good place to get basic information. However, there are also many state and local wage and hour laws which add to the complexity of the issues. Some state labor websites can provide good background in respect to that state’s policies. However, obtaining the advice of an experienced practitioner in wage and hours matters before instituting an internship or volunteer program is the best advice. The cost of getting good litigation avoidance advice on the front end is far preferable to the greater expense of defending a lawsuit or DOL administrative action.”
Labor and Employment Attorney Charles A. Rudgel.
“Do your due diligence before using volunteers or interns. Understand where the law is on this topic and what factors make someone an employee as opposed to an intern or volunteer. Factors to consider include any sort of compensation or benefit derived from the internship, the duration of the internship, and who manages the internship.”

Key Takeaway

Check with your employment counsel to ensure you're following both state and federal laws.

What are the most common child labor violations (in regards to student interns)?

Attorney James R. Mulroy from Jackson Lewis.
“The most common violations include hours of work (look to your state laws as well as the FLSA) and allowing child labor to work in hazardous locations or activities as defined in DOL and state policies.”
Labor and Employment Attorney Charles A. Rudgel.
“It depends on the state, but generally speaking, student interns can't work overtime, can't work past certain curfews, can't take away work from regular employees, and can't be called an employee. Moreover, state laws usually dictate how much student interns can earn (if anything).”

Key Takeaway

It varies by state, but there are often specific regulations when it comes to minors or student interns.

In Short

  • There are strict guidelines you need to follow when determining whether or not to pay your intern. When in doubt, the answer is almost always, "Yes, they deserve to be paid."
  • There is no restriction on the number of hours an intern can work (unless they are a minor), but both minimum wage laws and overtime laws apply.
  • Keep in mind that your state laws could have even more guidelines when it comes to interns and volunteers. Always check with your employment counsel to determine the correct course of action.

Meet The Experts

Attorney Mark S. Goldstein from Reed Smith, LLP.

Mark S. Goldstein

Mark S. Goldstein is a senior associate in the New York office of Reed Smith and a member of the firm's Labor and Employment. Goldstein's practice is focused on defending employers in a wide range of employment litigation matters. In addition, Goldstein has provided workplace training to managers and Human Resources professionals and has drafted employee handbooks and individual workplace policies to ensure compliance with federal, state, and local law. He is also a contributor to the Firm's blog (employmentlawwatch.com). On Twitter, follow @MarkGoldstein.

Attorney James R. Mulroy from Jackson Lewis.

Jonathan M. Young

Jonathan M. Young focuses his practice on labor and employment matters, including wage and hour claims, class action benefit claims, class action contract and tort cases, state Attorney General investigations, commercial litigation, Department of Labor investigations and banking settlements.

Attorney James R. Mulroy from Jackson Lewis.

James R. Mulroy

James R. Mulroy is the Office Managing Principal of the Memphis office of Jackson Lewis P.C. He has more than 30 years of trial and litigation experience, and he has represented clients in dozens of labor and employment cases. He regularly counsels clients on a broad spectrum of employment related issues including FLSA compliance.

Labor and Employment Attorney Charles A. Rudgel.

Charles A. Krugel

Charles A. Krugel is a management side labor and employment attorney as well as a human resources counselor. He has more than 20 years of experience in his field and has been running his own practice for the past 15. He serves small to medium sized companies in a variety of industries. Besides providing traditional labor and employment law services, Charles has negotiated hundreds of labor and employment agreements and contracts.