If you are hiring – or have hired – summer interns, are you up to date on how you need to compensate them, if at all? Traditionally, most interns worked over the summer for the experience and to build their resumes. However, unpaid internships have come under more scrutiny in recent years, not only regarding wages but also for potential benefit eligibility under the Affordable Care Act.
Historical guidance, as reflected in the Department of Labor’s (DOL) Fair Labor Standards Act (FLSA) has been that interns in the for-profit sector who qualify as employees rather than trainees typically must be paid at least the minimum wage and overtime compensation for hours worked over 40 in a workweek. For a firm to avoid paying wages to interns, they must be the “primary beneficiaries” of the program—in other words, the programs must benefit the intern more than the company.
Fortunately, 2018 guidance eased the requirements somewhat. The update, published in a DoL guidance document on its website, requires unpaid internships to pass a “primary beneficiary test” based on seven criteria commonly recognized in court cases. The old test included six factors, one of which prohibited employers from deriving “immediate advantage from the activities of the intern.” Employers complained that this requirement made it nearly impossible to engage an intern in activities that were meaningful for both the intern and the employer.
Furthermore, unlike the previous standard, an unpaid internship isn’t required to meet any threshold regarding the seven factors. If asked to defend their programs in a court case or DoL action, employers are allowed to justify the internship on its own merits.
The 2018 Test for Unpaid Interns and Students
Courts have identified the following seven factors as part of the test:
- Expectation of Compensation. Is it clear that there is none? Any implied or stated compensation makes the intern an employee.
- Training: Does the internship provide training comparable to any other educational environment?
- Formal Education. Is the internship tied to the intern’s formal education, either through integrated coursework or academic credit?
- Schedule: Does the internship period correspond to the academic calendar?
- Applicability: Is the internship’s duration limited to a period of beneficial learning?
- Paid Work Product: Does the intern’s work complement, rather than replace, the work of paid employees?
- Promise of work: Is there no promise, understanding or entitlement to a paid job at the internship’s conclusion?
The question of how to compensate interns (or not) is further complicated by the Affordable Care Act (ACA). The ACA defines a full-time employee as a person working 30 hours per week or more and does not make an exception for interns. This means that if interns are paid and working more than 30 hours per week, they are largely eligible for insurance coverage. Employers should check Summary Plan Descriptions as well as Certificates of Coverage to make sure that eligibility is clearly and consistently defined.
Summer interns do not qualify for the ACA if they fall into one of the two exceptions the ACA provides – seasonal employees and variable-hour employees. Seasonal employees fall under the DOL definition when they begin work at generally the same time every year and their employment is limited to a season. If seasonal and variable-hour employees work more than 30 hours in a week, but don’t average 30 hours a week over the duration of their employment term, they are not eligible to receive benefits.
Employers might also consider looking at internship programs that are administered externally, like the TAG Ed programs that provide students with relevant, hands-on STEM learning opportunities. The internship runs for five consecutive weeks with interns working an average of 20-30 hours per week. Students are paid $200 per week by their host company for a total stipend of $1,000 at the end of their assignment.
Summer internships can be extremely beneficial for the company and the intern. Employers simply need to define their internship program concisely and in compliance with federal labor laws.