As the summer approaches, so too do summer internships. There are two types of classic summer internships: paid and unpaid. Obviously, if you decide to pay your interns, you can (and must) treat them as employees, meaning that you need to make sure that they are compensated at minimum wage or above, and they need to be paid for overtime if they are non-exempt workers. If you are looking to have unpaid interns, that can be a kind of a thorny issue. Unpaid internships are not as common as they used to be, and they have fallen into disfavor under modern interpretations of the Fair Labor Standards Act. If you do decide you want to have unpaid interns, you need to make it clear that the unpaid internship is for the benefit of the intern, not for the company. This is called the “primary beneficiary test.”

If a court has to weigh whether a worker is an intern (who can be unpaid) or an employee (who must be paid minimum wage), a court looks to the following:

1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation;
2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment;
3. The extent to which the internship is tied to the intern’s formal education program by integrated course work or the receipt of academic credit;
4. The extent to which the internship corresponds with 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 there is no entitlement to a paid job at the conclusion of the internship.

In you prefer to skip the legal jargon, your unpaid internship program essentially has to be tied to an academic program. Otherwise, it is not likely to withstand scrutiny. Expectations also need to be managed: interns will not be paid, and interns are not to expect a job at the conclusion of the internship. Although the unpaid internship is supposed to primarily benefit the intern, the 6^th element of the primary beneficiary test certainly suggests that they can do some work that would ultimately benefit the company. That work they do should be heavily supervised, contain significant feedback, and not be of the type of work that your paid employees typically do.

It is possible (although risky) to provide stipends to your interns. Perhaps a single stipend at the end of the internship’s duration, or a monthly stipend. But this stipend should not be tied to the quality or quantity of work done. It should be tied to the intern’s expenses, such as fuel used to get back and forth from home to the internship, or food (i.e. the costs associated with the intern buying or packing lunches). You can likely tie stipends to attendance, because they would not incur these expenses without attendance. That way, you aren’t providing stipends to your interns who fail to show up. However, the use of stipends (even implemented carefully) makes it more likely that a reviewing judge would determine that your intern is actually an employee. An intern challenging their employment status could potentially argue that, regardless of how the stipend is categorized, it is compensation and they expected that compensation. These are just the risks that come with unpaid internships: risks which are heightened if you want to provide them with stipends.

The easiest answer is always to pay your interns an hourly salary and create a formal employment relationship. Especially because you can derive an economic benefit from paid interns without fearing that you’ve run afoul of the FLSA. But if you wish to have unpaid interns, make sure that it is tied to an academic institution, and don’t view the unpaid internship as an avenue to make profit without corresponding pay. Unpaid internships are not meant to be profitable for a company. They are meant to educate the interns. The benefit down the line for the company, of course, is that you are able to evaluate an unpaid intern for aptitude and cultural fit as it pertains to potential future employment, but that future employment must not be an expectation or an entitlement, and it is especially important to note that an unpaid internship should not be a prerequisite to paid employment, i.e. you can’t condition a paid job on first taking an unpaid internship.

If you have any questions about paid or unpaid internships, or even any questions relating to the FLSA and how you pay your employees and non-employees, you can contact Ben Ashworth or one of the attorneys at Colantuono Guinn Keppler.