Are Businesses Required to Pay their Interns?

Work internships are common for students and aspiring young professionals looking to gain some on-the-job experience. Some skills just can’t be taught in the classroom. Finding a mentor and learning about an industry from the inside is an indispensable part of higher education; indeed, many colleges and graduate programs have experiential learning requirements, which can take the form of externships, clinics, and internships.

This is a win-win for students and businesses: while students gain valuable experience and maybe even a bit of extra cash, companies gain valuable business support as well as potential new talent to hire and may give back to their alma maters and communities by providing these opportunities. However, the internship role raises questions for businesses as to how these workers should be classified:  Are interns considered employees? What is a company obligated to pay them, if anything? And are they legally entitled to any benefits?

Are interns owed minimum wage under the federal Fair Labor Standards Act (“FLSA”)?

The FLSA’s minimum wage and overtime pay requirements only apply to employees; interns need not be paid. The Department of Labor published guidance in January 2018 which listed seven (7) criteria to determine if an employment relationship may be classified as an internship or employment. To be classified as an unpaid intern, the following must be satisfied, and no single criterion is dispositive on its own:

1. Both parties understand that the intern is not entitled to compensation.
2. The internship provides training that would be given in an educational environment.
3. The intern’s completion of the program entitles him or her to academic credit.
4. The internship corresponds with the academic calendar.
5. The internship’s duration is limited to the period when the internship educates the intern.
6. The intern’s work complements rather than displaces the work of paid employees while providing significant educational benefits.
7. The intern and the employer understand that the internship is conducted without entitlement to a paid job at the internship’s end.[1]

This is a balancing test, which will vary from industry to industry and from job to job, but it comes down to who is the “primary beneficiary” in the arrangement. For example, many summer internships lean more towards the “unpaid intern” side of the scale as they tend to benefit the intern more than the business: they are primarily there for observation and training, often garnering a few credits along the way.

Law clerks, on the other hand, are usually given real work, and often continue working part-time through the school year. Moreover, it has become common practice among firms to pay their clerks an hourly rate. Clerks may not qualify for other employment-related benefits, like health insurance or worker’s compensation, but they would have the legal status of an hourly worker under the FLSA.

Though this test will yield different results across different professions, it is also worth mentioning that industry standards do play a role.  While not dispositive, it may be helpful to consider whether other similar businesses are paying their interns when determining whether an intern should be paid.

Internships can be distinguished from apprenticeships, which also provide on-the-job training.

Apprenticeships are regulated under National Apprenticeship Act of 1937 (“NAA”) codified at 29 U.S.C. 50. Whether a job may be an apprenticeship is addressed by the Department of Labor’s regulations found at 29 CFR Part 29, which implement the NAA.  The existing regulations under the NAA set forth labor standards for apprenticeships and limit suitable occupations for an approved apprenticeship program (i.e., “apprenticeable occupations”) to those which, among other things: “involve the progressive attainment of manual, mechanical or technical skills and knowledge which, in accordance with the industry standard for the occupation, would require the completion of at least 2,000 hours of on-the-job learning to attain.”[2]

Thus, many internships and clerkships offered by businesses and firms are categorically excluded from the universe of suitable apprenticeship occupations under the current rules. Though they may stay on and eventually meet the 2,000-hour benchmark, most are not trying to attain “manual, mechanical, or technical skills.” Nor is 2,000 hours an industry standard for, say, insurance brokering.

The Department of Labor recently announced a proposed rule amending these regulations to “strengthen[] labor standards, quality and worker protections” as well as “promote accountability” and “reinforce the principles of diversity, equity, inclusion, and accessibility.”[3] The proposed rule retains the 2,000-hour requirement but removes language limiting suitable occupations to skilled trades in order to broaden the industries that may establish apprenticeship programs.  However, it remains to be seen what additional suitable occupations will be approved.

Bottom line: while interns may not meet the definition of “apprentice” under applicable laws, they do not automatically meet the definition of “employee” under the FLSA. Businesses should refer to the DOL’s seven-part test to determine where an internship program falls. Being that these can vary from case to case, it is best to consult with an experienced employment attorney on the status of an intern.

Written by AJ Esral, Esq. The information contained herein is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information contained in this blog should be construed as legal advice from Shumaker Williams P.C. or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. This blog is current as of the date of original publication.

[1] https://www.dol.gov/agencies/whd/field-assistance-bulletins/2018-2 (Accessed 01/26/2024).

[2] 29 USC, §29.4

[3] Department of Labor, Release Number 23-2419-NAT (December 14, 2023); https://www.dol.gov/newsroom/releases/eta/eta20231214-0 (Accessed 01/26/2024)