It’s that time of the year. School is out. The weather is warm. And high school and college students all over the country are descending on the workforce in search of temporary summer employment. That means it’s also time for businesses who take on temporary summer workers to familiarize themselves with the federal and state regulations governing the wages and hours of "interns."
A common misperception held by employers is that "interns" are not employees and are therefore not entitled to minimum wage and overtime pay. However, guidelines promulgated under both the federal Fair Labor Standards Act (FLSA) and California law suggest that interns employed by "for profit" entities must be compensated as employees, unless they fit into a "trainee exemption."
The U.S. Department of Labor (DOL) uses a six-factor test to determine whether the requirements of the FLSA apply to an intern working with a "for profit" private sector employer. The intern may be unpaid if: 1) the internship provides training similar to that which would be given in an educational environment; 2) the internship experience is primarily for the benefit of the intern; 3) the intern is not a substitute for regular employees but rather works under close supervision of existing staff; 4) the employer derives no immediate advantage from the intern’s work and may actually have its productivity inhibited; 5) the intern is not guaranteed a job at the end of the internship; and 6) both the intern and the employer understand that the intern is not entitled to wages.
The California Division of Labor Standards Enforcement (DLSE) had until recently published an 11-factor guideline on the applicability of California wage and hour law to interns incorporating many of the same standards currently considered by the DOL. Now, however, the DLSE will simply adopt the 6-factor test promulgated by the DOL.
Bearing in mind the relevant factors as stated by the DOL, employers seeking to employ summer interns on a voluntary basis should carefully structure their internship programs. For example, internships that are of a more general nature, i.e., the intern works on a variety of matters as a way of building his/her skills rather than focusing on servicing a narrow aspect of the employer’s business, would be more likely to qualify under the state and federal exceptions. In similar fashion, the more an internship program is designed as an educational opportunity or academic experience, the less likely the employer will be liable to pay minimum wage and overtime compensation for the intern’s services. Finally, it is important for employers to have a scheduled end date for the internship and avoid hiring any intern to a full-time position immediately following the internship program, so as to avoid the appearance of an extended training session leading up to permanent employment.
Furthermore, the DOL guidelines also note that the payment of a stipend to an intern, as opposed to payment of wages, does not automatically create an employment relationship under the FLSA. However, the stipend must not exceed the reasonable cost of living expenses of the intern during the internship.
Because of the multitude of factors to consider and the intricacies of state and federal wage and hour laws, employers interested in employing summer interns are well advised to consult with an experienced labor and employment attorney.