Ensuring your internship is lawfully compliant is essential. One of the most common mistakes businesses make is offering an unpaid internship. The Department of Labor (DOL) has established federal guidelines under the Fair Labor Standards Act (FLSA) that define an unpaid internship.
If your company is for-profit and your internship program does not meet all six federal guidelines, then the intern may be considered an employee rather than a trainee and typically must be paid at least minimum wage. The federal guidelines are commonly referred to as the “Six Prong Test” and can be found at the Department of Labor website. Please check the Department of Labor website regularly for updates.
From the Department of Labor website
The Test For Unpaid Interns
There are some circumstances under which individuals who participate in “for-profit” private sector internships or training programs may do so without compensation. The Supreme Court has held that the term "suffer or permit to work" cannot be interpreted so as to make a person whose work serves only his or her own interest an employee of another who provides aid or instruction. This may apply to interns who receive training for their own educational benefit if the training meets certain criteria. The determination of whether an internship or training program meets this exclusion depends upon all of the facts and circumstances of each such program.
The following six criteria must be applied when making this determination:
- 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.
- The internship experience is for the benefit of the intern.
- The intern does not displace regular employees, but works under close supervision of existing staff.
- 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.
- The intern is not necessarily entitled to a job at the conclusion of the internship.
- 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. Some of the most commonly discussed factors for “for-profit” private sector internship programs are considered below. See the Department of Labor website , Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act, for complete information.