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Internships: To pay or not to pay?

by Dawn M. Harmon on Sep. 13, 2018

Employment 

Summary: Whether an intern is entitled to payment is a complex issue. If not properly categorized and compensated, an "intern" may be entitled to wages.

As summer approaches, employers across the state will begin to receive resumes from students seeking practical work experience through internships. While internships can provide a great experience for both employers and students, one question that commonly arises is whether an intern should be paid.

Obviously, the most effective way to avoid wage and hour litigation is for employers to pay interns at least minimum wage. However, in some situations, an unpaid internship can benefit both the employer and intern.

In January, the U.S. Department of Labor relaxed its test to determine whether an intern or student is, in fact, an employee entitled to pay and adopted a “primary beneficiary test.” It includes seven factors to consider and the purpose of the test is to determine whether the employer or intern is the primary beneficiary of the internship.

The factors include:

  • Both parties understand that the intern is not entitled to compensation
  • The internship provides training that would be given in an educational environment
  • The intern’s completion of the program entitles him or her to academic credit
  • The internship corresponds with the academic calendar
  • The internship’s duration is limited to the period when the internship educates the intern
  • The intern’s work complements rather than displaces the work of paid employees while providing significant educational benefits
  • The intern and the employer understand that the internship is conducted without entitlement to a paid job at the internship’s end.

Unlike the previous test, not all factors need to be met to satisfy the test; additionally, no single factor is determinative. Rather, the criteria are designed to examine “the economic reality” of the intern-employer relationship to determine which party is the primary beneficiary of the internship. If, after analyzing the relationship under the primary beneficiary test, it is evident that the intern is the main beneficiary of the relationship, he or she does not have to be paid under federal law. To date, Maine courts have not ruled on the issue of when an intern must be paid.

If an employer decides to offer an unpaid internship, clear communication and documentation is essential. This should begin with an employer’s recruitment materials and/or written description of the internship. The internship description should clearly define the duties and responsibilities of the position and explicitly state that the internship is unpaid.

Before the internship begins, the employer, intern and, preferably, the school, should enter into a written agreement. The agreement should expressly state that there is no expectation of compensation, the duration of the internship is limited (tied to a semester or summer, for example), and there is no promise of future employment. Once the internship begins, open communication during the internship will work to prevent misunderstandings along the way.

There may be instances in which an employer analyzes the internship and cannot conclude that the internship satisfies the “primary beneficiary test.” In these instances, from a risk management perspective, it makes sense for an employer to compensate the intern at a rate no lower than minimum wage.

Whether paid or unpaid, internship programs can provide substantial benefits to both interns and employers. Interns receive practical experience in their intended field while employers gain an extra set of hands and the opportunity to engage with an individual who comes with a fresh perspective and eagerness to learn.

Dawn Harmon is a employment attorney at Perkins Thompson. She can be reached at dharmon@perkinsthompson.com.

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