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Interns: To Pay or Not to Pay, That is the Question

Posted in Buying, Owning and Selling a Business, Labor & Employment

Many businesses, including law firms and accounting firms, employ interns over the summer. There are a number of reasons such an arrangement works for both sides.

For the business, interns provide bodies that can fill voids in the work staff, since many people center their vacations over the summer. The internship also provides the business with an opportunity to get to know a prospective employee, creating a source of qualified future applicants. For some businesses, interns perform tasks that result in a positive cash flow for the company!

From the intern’s standpoint, the internship provides the coveted “experience” factor which enhances one’s resume. It provides a look into a company to see the company’s culture and determine whether it is a place the intern may be interested in working after graduation. For paid interns, it provides needed spending money, helping loosed the belt on a typically tight student budget.

DOL Position

Balancing the above factors has resulted in a mixed bag as far as internships are concerned: some are paid and some are unpaid. The real question here though is, “how does the government look at this? The Department of Labor leans toward paid internships. The DOL has developed a 6 part test:

The following six criteria must be applied when making this determination:

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If all of the factors listed above are met, an employment relationship does not exist under the FLSA, and the Act’s minimum wage and overtime provisions do not apply to the intern.  This exclusion from the definition of employment is necessarily quite narrow because the FLSA’s definition of “employ” is very broad.

Final Thoughts

In a second circuit court of appeals case from 2015 (Glatt et al. v. Fox Searchlight Pictures et al.), the court ignored the above 6 part test and instead looked at “which party was the primairy beneficiary of the arrangement.”

With this matter now clouded, it would definitely pay to consult with a knowledgable attorney as to how to treat the compensation issue, as far as interns are concerned. We, at Schober Schober & Mitchell, S. C. would be glad to assist with any such problems.