Author: Cassandra Lattin, COO
In California, the use of unpaid “interns,” in for-profit corporations, is a common labor law violation. One of the key industries under scrutiny is the Entertainment Industry. Under the Fair Labor Standards Act (FLSA) every employee must be paid at least the minimum wage.
Employers cannot get around this fact by misclassifying employees as “unpaid interns.”
In January 2018 the US Department of Labor Wage and Hour Division updated their information on Internship Programs under the Fair Labor Standards Act (FLSA). The following information is directly from their website:
Wage and Hour Division (WHD) 1
The FLSA requires “for-profit” employers to pay employees for their work. Interns and students, however, may not be “employees” under the FLSA—in which case the FLSA does not require compensation for their work.
The Test for Unpaid Interns and Students
Courts have used the “primary beneficiary test” to determine whether an intern or student is, in fact, an employee under the FLSA. In short, this test allows courts to examine the “economic reality” of the intern-employer relationship to determine which party is the “primary beneficiary” of the relationship. Courts have identified the following seven factors as part of the 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 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.
- 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.
Courts have described the “primary beneficiary test” as a flexible test, and no single factor is determinative. Accordingly, whether an intern or student is an employee under the FLSA necessarily depends on the unique circumstances of each case.
If analysis of these circumstances reveals that an intern or student is actually an employee, then he or she is entitled to both minimum wage and overtime pay under the FLSA. On the other hand, if the analysis confirms that the intern or student is not an employee, then he or she is not entitled to either minimum wage or overtime pay under the FLSA.”
Supporting Guidelines 2
Furthermore, the California Division of Labor Standards Enforcement (DLSE) offered some additional guidelines in a, 4/7/2010, opinion letter from than Acting Chief Counsel, David Balter. To summarize this opinion, all businesses in California must submit an outline of their proposed internships to the DLSE. Each internship must meet the following requirements for approval:
- Internships must be part of an established course of an accredited school or vocational training program.
- Interns must be trained to work in a specific industry
- Interns must not displace employees or do the work a paid employee would typically perform.
- A school or agency must supervise internship training.
- Employers must ensure that interns do not receive employee benefits, insurance, or workers comp.
- Employers must ensure that potential interns are aware that internships are unpaid.
If your internship qualifies under these factors as an unpaid internship, state and federal laws will not consider your internship to be an employment relationship that qualifies for minimum wage or overtime pay.
If you are an employer that on boards unpaid interns, you would want to apply both the California and Federal test. If you find an inconsistency in your program in any area, chances are:
- Your intern is an employee.
- Your internship(s) should be paid at minimum wage.
- You want to schedule your interns under 30 hours a week to avoid violating the Affordable Care Act (Obama Care)
If you are concerned about your internship program or interested in developing a compliant one,
call PEOple OneSource at (562) 548-2371. We can help.