Quick Video Guide to Illegal Internship Crackdown

In June 2010, unpaid internships were drawing fresh scrutiny from the U.S. Department of Labor, and we pointed readers to a short video in which employment attorney Lisa Yankowitz boiled the issue down to its main points in a few minutes. That video was posted on informedworkplace.com and is no longer available at its original address. The question it answered is still worth asking every time a client wants help with an internship program: does this person have to be paid?

The Rule Has Changed Since 2010

When we first covered the crackdown, the DOL applied a six-part test, and an unpaid internship had to satisfy all six criteria. We summarized that version in our post on the six criteria for unpaid internships. In January 2018, the DOL updated Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act to follow the "primary beneficiary test" that federal courts had been using. The question now is which party, the intern or the employer, is the primary beneficiary of the relationship.

The Seven Factors in the Primary Beneficiary Test

Fact Sheet #71 lists seven factors courts weigh:

1. Whether the intern and the employer clearly understand there's no expectation of pay. Any promise of compensation, stated or implied, points toward employment.
2. Whether the training is similar to what the intern would receive in an educational setting, including clinical and other hands-on training.
3. Whether the internship is tied to the intern's formal education through coursework or academic credit.
4. Whether the internship accommodates the intern's academic commitments by following the academic calendar.
5. Whether the internship lasts only as long as it provides beneficial learning.
6. Whether the intern's work complements the work of paid employees, instead of displacing it, while providing significant educational benefits.
7. Whether both sides understand the internship comes with no entitlement to a paid job at the end.

No single factor decides the outcome. The DOL calls the test flexible, and the answer depends on the facts of each internship. If the analysis shows the intern is really an employee, that person is owed minimum wage and overtime under the FLSA. The fact sheet also notes that unpaid internships with public sector employers and nonprofit charitable organizations, where the intern volunteers without expecting pay, are generally permissible. State wage and hour laws apply on top of the federal rules.

What to Ask When a Client Wants Interns

Recruiters hear this request every spring. A client wants a few students for the summer and would rather not pay them. Before you take that job order, walk the hiring manager through a few questions:

• Is there a school connection, such as academic credit or a program coordinator?
• Who will train and supervise the intern, and how much of the week is learning compared with production work?
• Would the company need to hire someone else if the intern weren't there?
• How long will the internship run, and does it line up with the school calendar?

If the answers describe someone doing real production work for a for-profit company, the simplest fix is to pay the intern. A paid intern can be placed like any other contract worker, which keeps your client on the right side of the FLSA and gives you a billable placement. We made that case years ago in contractors as an alternative to unpaid internships, and it still applies.

FoxHire can be the W-2 employer for those paid interns. We handle payroll, tax withholding, I-9 and E-Verify, and workers' compensation, so your client gets a summer of help without adding interns to its own payroll. This post is general information and not legal advice; when an internship sits close to the line, your client should talk to employment counsel.

The Takeaway

The 2010 crackdown made unpaid internships riskier, and the 2018 update made the test more flexible but harder to run as a checklist. Ask the hard questions before you write the order, and steer for-profit clients toward paid programs. A risky request can turn into a clean placement.