Test helps employers decide on unpaid interns

If you’re considering hiring a summer intern or two, you might wonder "Do I have to pay them?"

The U.S. Department of Labor and the Internal Revenue Service generally view for-profit business internships as employment. That means an employer must pay at least minimum wage plus overtime if interns work more than 40 hours per week.

But there are exceptions. The DOL created a flexible, seven-factor test for unpaid internships in 2015. Employers can now balance each factor as they consider their options.

Here is a rule of thumb: If the employer primarily benefits from the arrangement, the intern must be paid and if the intern primarily benefits, then the internship can be unpaid.

The 7 factors to consider in an unpaid internship

Here are the seven factors to consider from the Department of Labor (Source: DOL Fact Sheet #71 for further details):

• There is no expectation of compensation by intern or employer. Any promise, even implied, suggests that the intern is an employee.
• The internship training is similar to an educational environment.
• It is tied to a formal education program by integrated coursework or the intern receiving academic credit.
• The arrangement follows the academic calendar accommodating the intern’s academic commitments.
• It is limited to a time period that offers beneficial learning.
• The intern’s work does not displace the work of a paid employee. It provides significant educational benefits.
• There is no expectation of a paid job when the internship ends.

Consider these factors together

The Fair Labor Standards Act allows employers to consider these seven factors together to determine whether an intern can be unpaid. The DOL's fact sheet says the decision "depends on the unique circumstances of each case." Minimum wage and overtime regulations do not apply if there is no employment relationship.

Nonprofits are viewed differently

There is another exception for those volunteering time for religious, charitable, civic, or humanitarian purposes for nonprofit groups. "Unpaid internships for public sector and non-profit charitable organizations ... are generally permissible,” according to the DOL.

Don't treat interns or students in ways that could be a liability for your business or organization. This process does not apply in all circumstances.

Contact BCN Services at 1-800-891-9911 for help in determining whether or not your summer intern should receive regular wages.