Early last year, the Department of Labor (DOL) adopted a new test for unpaid interns: the primary beneficiary test. With summer just around the corner (and with it, an influx of summer interns!), now is the perfect time for a refresher on unpaid internships.
Balancing vs. All-Or-Nothing
Previously, the DOL used a six-question all-or-nothing test to classify unpaid interns. Under this test, the internship had to fully meet all six criteria. Otherwise, the worker would be classified as an employee and entitled to minimum wage and overtime.
Now, the DOL uses a balancing (or factors) test with seven questions. Unlike in the all-or-nothing test, no single question will disqualify the worker from being classified as an unpaid intern with the new test. Instead, the employer may consider the responses as a whole.
Unpaid Internships Today
Although the new questions overlap significantly with the old questions, there is a major element missing from the new test. This missing piece is a focus on whether the intern is providing a tangible benefit to the employer.
To illustrate, the old test indicated that the employer should receive little to no benefit from the services of an unpaid intern. (With the exception of goodwill and a qualified future applicant.) Conversely, the new test takes no consideration of if the employer is receiving a benefit.
Instead, the new test focuses on the academic component of the internship. Previously, only one of six questions in the old test asked about the training and educational aspects of the job. Now, four of seven do in the new test.
Employers are free to look at factors outside of these seven. However, they should be careful about stretching to find new questions if these seven lead to an answer of “paid employee.”
The Primary Beneficiary Test
Under the DOL’s new primary beneficiary test, employers should consider 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.
- The internship provides training that would be similar to that which would be given in an educational environment. For example, the clinical and hands-on training provided by educational institutions.
- The internship’s duration is limited to the period in which the intern receives beneficial learning.
- The internship is tied to the intern’s formal education program. For example, via integrated coursework or the receipt of academic credit.
- The intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
- The internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
- Both the intern and the employer understand that there is no promise of a paid job at the conclusion of the internship.
According to the Department of Homeland Security, only employees are required to complete a Form I-9. However, we strongly encourage employers to proceed with caution when it comes to unpaid interns. If the internship does not pass the primary beneficiary test, then the intern must be considered an employee. If this is the case, the worker must be paid at least minimum wage plus overtime and is required to complete an I-9 form.
As far as other documentation is concerned, businesses should consider revising their internship program-related documentation if they have not already. For example, employers should update any policies, advertisements, or recruiting materials to incorporate the language of the seven factors in the DOL’s new test.
Additionally, both the intern and the business should sign agreements incorporating the same language. That way, your business will be protected in the event of any dispute with clear documentation of the nature of the relationship.
Be aware that misclassification can be very costly. For example, employers may be liable for back pay, back taxes, penalties, and attorney fees.
In light of this, if you are unsure about your decision to bring on unpaid interns, we’d suggest you err on the side of paying them. If you do decide that your internship program qualifies to be unpaid, document exactly how your program meets each criterion.
A final thought: it is important to note that many workplace protections apply to interns, whether paid or unpaid. For example, the Civil Rights Act, the ADA, OSHA, and many other state-specific laws.
What do you think?
Let us know in the comments below your own experiences with summer interns. Have you already used the DOL’s new unpaid intern classification test? What do you think of it compared to the all-or-nothing test?
Want more HR tips, tricks, and resources? Ask about our comprehensive suite of HR Services (including a full library of handy guides, articles, and checklists!) to learn how we can help you grow your team. And be sure to follow us on Facebook, Twitter, and LinkedIn to make sure you never miss a beat!