For-Profit Employer Considerations for Developing Career Talent Through Unpaid & Paid Internships

For-profit businesses can offer industry career training opportunities through unpaid and/or paid internships under the federal Fair Labor Standards Act (“FLSA”). Since each state’s wage and hour laws can also evaluate the propriety and compliance of a company’s unpaid internship program, the structure of the program to be implemented should not only be developed in compliance with the FLSA, but also that of the wage and hour laws of the state where the program is to be offered and run. Importantly, interns are neither volunteers nor student-learners which are classifications subject to different regulations.

Compliant unpaid internship programs make clear that interns are not “employees” subject to the general rule that for-profit employers pay participants a minimum wage and overtime. The “primary beneficiary test” is a flexible, seven-factor test used to determine whether an intern or student is, in fact, an employee under the FLSA that examines the “economic reality” of the intern-employer relationship to determine which of the two parties is the “primary beneficiary” of the relationship. Considerations to be reviewed (with the factors being cumulative, but with no one factor being determinative) are the extent to which the:

1. Intern & employer clearly understand that there is no expectation of compensation. For example, the promise of compensation, express or implied, suggests that the intern is an employee.

2. Internship provides training like that which would be provided in an educational environment, e.g., clinical, and other hands-on training provided by educational institutions.

3. Internship is tied to the intern’s formal education program by integrated coursework and/or the receipt of academic credit.

4. Internship accommodates the intern’s academic commitments by corresponding to the academic calendar.

5. Internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.

6. Intern’s work complements, rather than displaces, that of paid employees while providing significant educational benefits to the intern.

7. Intern & employer understand that the internship is conducted without entitlement to a paid job at its conclusion.

Some states, like New Jersey, have additional or different factors to be considered, such as requiring the internship to be coordinated between the employer and the intern’s university.

It is prudent to interpret each of the foregoing factors cautiously and to maintain accurate records of an intern’s hours worked. The consequences of misclassification can include penalties or damage awards, payment of back wages (plus interest), liquidated damages, attorneys’ fees, unpaid taxes and unemployment insurance contributions, and possibly criminal charges for executives making personnel decisions.

Paid internship programs mean that interns are employees subject to applicable minimum wage and overtime requirements. Some states offer financial support for paid internships, subject to specified restrictions or criteria. An example of this is New Jersey’s Career Accelerator Internship Program, which offers up to 50% of wages paid to new interns, up to $3,000 per student in STEM-related industries. Check with your state’s Department of Labor website or even your locality’s website to see if such programs are available in your area.

Whether paid or unpaid, internships can benefit interns in providing them with a proper start to their chosen career, while providing employers with the opportunity to cultivate talent.

If you have any questions regarding Unpaid & Paid Internships, please contact John J. Jacko, III. John is a Partner in Leech Tishman’s Employment & Labor and Litigation & Alternative Dispute Resolution Practice Groups. John is based in the firm’s Philadelphia, PA office. He can be reached at 267.938.4562 or jjacko@leechtishman.com.

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Leech Tishman Fuscaldo & Lampl is a full-service law firm dedicated to assisting individuals, businesses, and institutions. Leech Tishman offers legal services in business restructuring & insolvency, corporate matters, employment & labor, estates & trusts, intellectual property, litigation & alternative dispute resolution, and real estate. In addition, the firm offers a wide range of legal services to clients in the aviation & aerospace, cannabis, construction, energy & natural resources, healthcare, and hospitality industries. Headquartered in Pittsburgh, PA, Leech Tishman also has offices in Chicago, Los Angeles, New York, Philadelphia, Sarasota and Wilmington, DE.