By Scott M. McElhaney

The end of the school year is on the horizon for high school and college students. Along with catching up on sleep and enjoying a break from classes, many students will want to spend at least part of the summer working for money, experience, or both. At the same time, many employers plan to hire interns for the summer to assist the regular staff, tackle long-neglected projects, or recruit potential employees for the future. However, many large and small employers trip up when it comes to compensating summer interns.

A number of federal and state laws affect pay practices for summer interns, and ensuring that your company complies with those laws can save you headaches down the road. Here is a quick refresher on some of the federal laws that regulate how summer interns must be treated.

Do Summer Interns Have to Be Paid at All?

First, some employers still do not pay summer interns. There are limited situations when non-paid internships are acceptable, but for most for-profit companies, those situations do not apply. Generally, interns must be paid as regular employees.

The Fair Labor Standards Act (FLSA) requires companies to pay employees a minimum wage (currently $7.25 per hour) and a higher “time-and-a-half” rate when employees work overtime (over 40 hours in a week). The Act also sets out rules for youth employment that impose certain restrictions for workers who are under 18. The FLSA only applies to “employees,” and some companies can show that their interns are not employees, but only if the internship is tied to an intern’s formal education.

To determine whether interns at private sector employers can be classified as non-employee students who need not be paid minimum wage, courts ask “who is the ‘primary beneficiary’ of the relationship?” If the company is the primary beneficiary, the intern should be treated as an employee, and he or she must be paid at least minimum wage. If the intern is the primary beneficiary, he or she is deemed to be a student and need not be paid at all. Several factors guide this analysis, and no one factor is determinative, but courts examine:

1. Whether the intern and the company understand that the internship is unpaid;
2. Whether the internship provides training similar to that which would be given in an educational environment;
3. Whether the internship is connected to a formal education program (such as required coursework or work for academic credit);
4. Whether the internship accommodates the academic calendar;
5. Whether the internship is limited in duration so that it corresponds to the time the intern is learning;
6. Whether the internship complements, instead of displaces, the work of regular employees; and
7. Whether the intern is promised a job at the end.

Simply put, if a company derives an immediate advantage from an intern’s work, the intern is most likely an employee. This will be the case for most for-profit companies. Work that is not designed to benefit the company is rare.

Can Summer Interns Be Classified as Independent Contractors?

Because most summer interns at for-profit companies don’t meet the FLSA’s test for being a student, some companies try to classify them as independent contractors and pay a flat per week or per month salary or stipend. That approach is often misguided.

Internships usually involve on-the-job-training and provide experience to people who have some background in a particular field or who want to learn more about that field. Supervision and direction in completing projects is thus a key part of the experience. A worker can generally only be classified as an independent contractor if he or she does not have direct supervision regarding how or when he or she completes a project. So, if daily job hours at a company’s office, training, and coaching are a part of an intern’s work, he or she most likely cannot be classified as an independent contractor.

Moreover, if an intern is not an independent contractor, the company has to comply with the FLSA’s minimum wage and overtime requirements, and paying an intern a flat per week or per month amount could thus run afoul of the FLSA.

What About Benefits Like Healthcare Coverage?

If an intern must be classified as an employee, many companies wonder whether the intern has to be included in the company’s health care or other benefit plans. The Affordable Care Act requires companies that have 50 or more full-time equivalent employees to offer healthcare insurance to their full-time employees or pay a penalty. A full-time employee under the ACA is generally an employee who works 30 hours or more each week. There are exceptions to the ACA’s requirements for “seasonal” employees that may be available for summer interns. However, those exceptions can sometimes be hard to meet, so categorical statements are difficult and an examination of each employer’s situation is needed.

To avoid having to offer healthcare benefits, some companies will only have interns work less than 30 hours per week. Other companies take a different approach. They offer interns healthcare insurance coverage because, as a practical matter, most are likely to be covered by a parent’s healthcare plan. Because children can be on a parent’s plan until they are 26, most summer interns won’t want to be on an employer’s plan. Other benefit plans have different standards for participation, and the terms of those other plans will control.

Do You Still Have a Question?

The circumstances under which companies may want to have interns vary widely, and there are also certain exceptions to, for example, the FLSA’s minimum wage requirements, so do not hesitate to call a Jackson Walker Labor and Employment attorney to discuss your specific situation.

Meet Scott

Scott M. McElhaney aims to help clients cost-effectively resolve commercial disputes and employment law matters. Scott has over 25 years of experience in contract and commercial tort suits and trade secret and non-competition agreement cases. He regularly advises businesses on employment disputes and handles employment discrimination, ERISA and other labor claims. In addition to his practice, Scott is active in the Bar and legal community. He has served as President of the Dallas Bar Association, currently serves as Chair of the Board of Trustees of the Dallas Bar Foundation, has chaired the DBA’s Equal Access to Justice Campaign, and is a past Chair of the DBA’s Business Litigation Section and Judiciary Committee. Scott has been recognized among The Best Lawyers in America in the areas of Commercial Litigation (2009-2011) and Litigation – ERISA and Labor & Employment (2011-2019). In 2018, he was named a “Super Lawyer” by Thomson Reuters and a “Best Lawyer in Dallas” by D Magazine.

The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice.