Are All Unpaid Internships Cost-Free to an Employer? Not If They Aren't Structured Properly!

With the summer season upon us, employers should review the DOL's policies on unpaid internships to avoid potential FLSA violations. FLSA liability develops when an intern crosses the line and becomes (or is considered) an employee. The FLSA only applies when there is an employee-employer relationship. Click here to read the DOL's Field Operations Handbook, which is a useful albeit slightly dated with a 1993 publication date, containing the analysis of FLSA applicability to various situations, from volunteers to research assistants. The Handbook discusses FLSA applicability to pharmaceutical externs and interns (at 10b37), finding no employment relationship with "externship" courses combining lectures and work training at a pharmacy as part of the curriculum, but finding an employment relationship with State required postgraduation and prelicensing "internships".

To be considered an intern and not an employee, the following six statements must be true and supported by sufficient evidence provided by the person offering the internship [found at 10b11 of the Handbook and more recently, in a May 17, 2004 Non-Administrator Wage and Hour Opinion]:

1. The training, even though it includes actual operation of the operation of the facilities of the employer, is similar to that which would be given in a vocational school;
2. The training is for the benefit of the trainees or students;
3. The trainees or students do not displace regular employees, but work under their close observation;
4. The employer that provides the training derives no immediate advantages from the activities of the trainees or students, and on occasion operations may actually be impeded;
5. The trainees or students are not necessarily entitled to a job at the conclusion of the training period; and,
6. The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.

This fact and circumstances test applies to interns, externs, apprentices, and graduate students, those individuals for whom training without compensation may not create liability for a potential employer. The May 17, 2004 Opinion examines more closely factors 3 & 4 and provides employers with a concise summary of the analysis to be taken by the Wage & Hour Division.

Review your internships now; making sure your summer programs comply with the FLSA can spare you the heat of a government investigation.