Last week, the Department of Labor issued new guidance on whether interns are “employees” covered by the Fair Labor Standards Act’s minimum wage and overtime provisions.  In the updated guidance, the DOL has adopted the “primary beneficiary test,” first applied by the U.S. Court of Appeals for the Second Circuit in 2015, and used by a growing number of courts in recent years.

The “primary beneficiary test” is flexible one that takes seven factors into account in determining whether an intern is an employee.  These factors are:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to 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 the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The DOL says that the purpose of the new test is to allow an examination of the “economic reality” of the relationship in order to determine who is the “primary beneficiary.”  The new test is more flexible than the DOL’s prior guidance, which included a rigid list of six mandatory conditions that had to be met in order for someone to qualify as a true “intern.”  The old test was criticized as being out of touch with the modern realities of the business world and too hard to satisfy.

While the new guidance is more flexible than the prior rules, it does not provide employers clear answers about whether their interns are employees or not.  The application of the factors depends greatly on the particular facts of each situation, and involves judgment calls about which there could be disagreement.  Many experts recommend that employers who want to use interns should develop formal internship programs with clear policies and consistent oversight.  Some employers choose to play it safe by paying interns minimum wage and monitoring their hours to avoid overtime issues.  In any case, it’s always a good idea for an employer to consult with their employment law counsel prior to bringing interns on board.