Summer Internships: Should they be paid or unpaid?

Summer is almost here, which means that students are trading in their flip flops and sunglasses for suits and padfolios as they prepare to start their summer internships. It is important that the for-profit companies, gearing up to welcome these eager students into their workplace for the summer, are informed of and comply with the federal and state regulations on compensation for summer interns.

The federal Fair Labor Standards Act (“FLSA”) requires employers to pay employees for their work. Accordingly, the important question to consider is whether the company’s summer intern class consists of “employees” or of “students/interns.” The Department of Labor’s (“DOL”) “primary beneficiary test,” issued in January 2018, provides factors that are taken into consideration to determine whether the person is an “employee,” therefore entitled to compensation under the FLSA. Review those factors here. In addition to compliance with federal regulations, companies must also comply with state-specific regulations.

New York

Applicable to for-profit companies in New York, the New York State Minimum Wage Act and Wage Orders are the state’s guidelines on payment. Under New York Law, the employment relationship is determinative of whether the student or intern qualifies as an “employee,” mirroring the FLSA criteria. In addition to the factors provided by the DOL under the FLSA, New York considers five other factors such as the extent any clinical training is performed under the supervision of people who are knowledgeable and experienced in the activity and the extent that the advertisements for the program clearly discuss education or training, rather than employment. Review those factors here. In New York, an employment relationship does not exist only if the situation meets all eleven criteria.

California

Prior to 2010, the State of California’s Division of Labor Standards Enforcement (“DLSE”) applied an “11-factor test” that consisted of additional factors not listed in the DOL’s factors. However, per an opinion letter issued in 2010, the current standard in California is the “primary beneficiary test” from the DOL. This standard adopts a “totality of the circumstances” test in evaluating these factors. For example, in California, if the student or intern does qualify as an “employee” under the “totality of the circumstances,” applying the DOL factors, then the employer may be required to compensate that student or intern with pay.

Texas

In Texas, the DOL factors are considered to determine whether the student or intern is an “employee.” The focus is on whether the experience looks more like a training/learning experience rather than a job. According to the Texas Workforce Commission, it is important for the company to describe the internship as a type of school or “academy” that is meant to prepare individuals for entrance into any company in an industry, rather than as an orientation period for entrance as an employee for that specific company.

Practical Advice

Before bringing in a new class of summer interns, a company cannot be too careful to ensure that it complies with not only federal law, but also state regulations. Because labels or job titles are not determinative, it is essential to evaluate the intended program under the factors listed above, according to the state in which the company is located. A few additional tips can assist in easing the transition into the summer program:

• Provide a written agreement to the student or intern, requiring his or her signature, with language detailing the mutual understanding that there will be no compensation for the duration of the internship.
• Partner with a college or university to coordinate the company’s internship in such a way that it paves a path toward that student obtaining a degree.
• Provide the student or intern with plenty of opportunities to observe professionals in the field, so that the program looks more like a learning experience than a job.
• Implement reflection journals or one-on-one meetings with the student or intern to periodically check-in, ensuring that the student or intern is actually benefiting from the summer program.
• Ensure that any marketing materials advertising the position details the educational aspects of the program such as the ability to receive academic credit toward a degree upon completion of the program.