Soon students and new graduates will be flooding into the workspace over the summer and throughout the year looking for internships. As an employer, it’s tempting to bring on interns in hopes of offering a “permanent” job later on down the road. Whether it’s a paid or unpaid internship, you do have to be mindful that sometimes there are some legal issues involved.

Interns are eager to get their foot in the door and aren’t likely to complain about an unpaid internship. But as an employer, you do have to comply with the U.S. Labor Department and the Fair Labor Standards Act (FLSA). According to the U.S Labor Department, it’s difficult for a for-profit company to comply with the law. Nonprofits employers can do it more easily because the internship can be categorized as volunteer work. In most cases, an intern at a for-profit business will be considered an employee unless the position passes the “primary beneficiary” test.

The FLSA states that an employer must conform to the “primary beneficiary” test. This means that if the intern gains more value from the internship than the employer gets from having their free labor, then the internship can be unpaid. For example, the intern is receiving school credit in return for their work. But if the intern’s work benefits the employer, the intern should be paid at least minimum wage and covered by all rights of the federal wage and hour law. See Kansas workplace laws and requirements here

7 Primary Beneficiary Test Factors for an Internship

  1. The intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation suggests that the intern is an employee.
  2. An internship provides training that would be similar to that which would be given in an educational setting.
  3. An internship is tied to the intern’s formal education program with integrated coursework or the receipt of academic credit.
  4. The internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. An internship duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The intern’s work complements, rather than displaces, the work of a paid employee.
  7. The intern and the employer understand that the internship is conducted without entitlement to a paid job at the end of the internship.

These seven “primary beneficiary” test factors are all weighed to determine whether an unpaid intern should be classified as a paid employee or an unpaid trainee. Of course, there are exceptions for those that volunteer their time freely and without anticipation for compensation. For example, non-profit organizations.

To minimize the risks in having an unpaid intern, we recommend that employers provide a written offer letter to the intern stating that the job is unpaid, that a job is not guaranteed upon completion, provide start and end dates, and state that applicants who receive college credit are preferred. When in doubt, it’s best to consult with legal counsel or classify your intern as an employee and pay them as required by federal, state and local law.