RCGI- Interns_ To Pay or Not to Pay_

With summer just around the corner, now is the perfect time for your company to advertise internship opportunities. Internships are often a “win-win” opportunity, providing valuable education and training for students while improving workflow for employers.

When offering internships, companies frequently struggle with whether these positions will be paid or unpaid.   The Fair Labor Standards Act (FLSA) requires “for-profit” employers to pay employees for their work. However, the FLSA’s definition of “employee” varies for students and interns. The Department of Labor (DOL) replaced the Obama administration’s standards early in 2018, providing what has become known as the “primary beneficiary test.”  Unlike the Obama administration’s standards, the criteria set forth in the “primary beneficiary test” can be balanced and no one factor will control the outcome.

Primary Beneficiary Test for Internships

1.  What is the mutual understanding regarding compensation during the internship?

If any promise of compensation has been made or implied, the student or intern is considered an employee of the company and should be paid accordingly.  

2.  Does the internship provide training comparable to that provided in an educational environment?

If the internship is unpaid, there should be evidence that the internship provides focused hands-on training like that provided in an educational environment.  

3.  Is the intern receiving any type of academic credit for the internship?

Consider how the internship is tied to the intern’s formal education program (i.e. integrated coursework and/or the receipt of academic credit).

4.  Does the internship accommodate the intern’s academic commitments?

Some internships run in conjunction with the academic calendar or provide flexible internship hours for students, offering another layer of education to the intern’s experience.

5.  Is the internship designed for a predetermined amount of time, with clear goals and objectives?

This is a good question to consider for both paid and unpaid internships. However, if a company is offering an explicitly unpaid internship, the company should be able to show that the experience was centered around providing education for the student and not “free labor” for the company.

6.  Are you using interns in place of regular paid employees?

Consider whether the intern’s work complements or displaces the work of regular paid employees.

7.  What are the post-internship expectations?

Throughout the recruiting and onboarding process, communicate what will happen when the internship concludes. Be clear that the student or intern is not entitled to a paid regular employee position at the end of the internship. Avoid making promises, financial or otherwise, that may not be kept at the end of the term.

Analyze Your Responses to the Primary Beneficiary Test

If analysis of the factors above reveals that an intern or student is really an employee, then he/she is entitled to both minimum wage and overtime pay under the FLSA. However, if the analysis confirms that the intern or student is not an employee, he/she is not entitled to minimum wage or overtime pay under the FLSA, and the internship may be unpaid.

By considering each of these questions in advance when developing an internship, you may avoid any terms which don’t clearly indicate an internship and force you to pay an intern whom you hadn’t budgeted for. 

Additional Primary Beneficiary Test Resources

The U.S. Department of Labor has provided the following PDFs regarding the primary beneficiary test for “for-profit” employers:

Guidance with Obligations Under the FLSA

If you have questions about your obligations under the FLSA, please contact Redstone GCI’s experienced consultants. We can review your policies and procedures and discuss risk considerations to assist you in making the right decisions for your company. Our Human Resource consultants can also guide you through the task of establishing policies and procedures governing internships, to ensure your company has designed (or help you design) an internship program which will pass the Primary Beneficiary Test, benefiting both your team and the interns you will be teaching.


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Written by Kayla Klutts

Kayla Klutts Prior to joining Redstone Government Consulting, Inc., Kayla worked with elementary school students in the Nashville metro area. Her desire to help others led her to the legal field, where she worked as a paralegal assisting clients through the litigation process. In her current role as HR Administrator, Kayla blends her teaching experience, legal background, and can-do attitude to create the optimal experience for our staff and clients. Education Kayla holds a bachelor’s degree in education from Lakeland University.

About Redstone GCI

Redstone Government Consultants are a team of the most senior industry veterans and the brightest new talent in the industry. Many have held senior government positions including leadership roles in the DCAA. Our new talents bring significant accounting and software experience along with fresh perspectives, inspiration and energy to our team. Through our leadership and combined experience, we provide a unique perspective, bringing both government and contractor proficiencies to bear and ensuring rock-solid government compliance for our clients.

Topics: Human Resources, Contracts Administration