Internships are a rite of passage for many who want to gain experience and make valuable connections. If interns are paid, the internship typically functions like an entry-level position with an expiration date. However, it can get a trickier for companies that hire unpaid interns, since different rules apply. In the past, the Department of Labor (“DOL”) made it almost impossible for “for profit” employers to establish unpaid internship programs that did not violate the Fair Labor Standards Act (“FLSA”). The DOL used a rigid, six-factor test that prohibited employers from gaining an immediate advantage from the intern’s activities, which severely limited the intern’s usefulness. In January 2018, the DOL discarded its six-factor test and adopted new standards coming out of the federal appellate courts. The new test, referred to as the “primary beneficiary” test, recognizes that interns get valuable non-monetary benefits from the internship relationship. (See recently issued Field Assistance Bulletin No. 2018-2.) The new test includes the following seven factors:

1. 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.
2. 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.
3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
6. 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.
7. 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.

Unlike the prior DOL test, which required that all six factors be met, the primary beneficiary test is a flexible one where all of the factors are weighed together. The principal consideration is whether the intern is the primary beneficiary of the relationship. Employers who are considering using unpaid interns should consider the following pointers:

1. Revise all intern-related documentation, including handbooks and recruiting materials, to use the language in the new test.
2. Both the employer and intern should sign an agreement that incorporates the language of the new test.
3. Ensure that the intern’s educational institution is overseeing the internship and that the work is primarily academic in nature. Work with the college or university to get educational credit for the internship work, where possible.
4. Do not assign much “grunt work.” Focus on tailoring tasks to academic goals.
5. Set the duration of the internship before it begins.
6. Focus on training the intern with transferable skills, not just those unique to your business.

Of course, if an employer finds the new test to be too constraining, it can always pay its interns. If you have questions or concerns about how to handle the hiring and management of paid or unpaid interns, feel free to reach out to us for advice. You may contact Megan Wagner at mwagner@setlifflaw.com or (804) 377-1275 or Stephen Setliff at ssetliff@setlifflaw.com or (804) 377-1261.