The most comprehensive resource available for payroll professionals. This service provides payroll news, white papers, custom research answers, webinars on the hottest payroll topics, survey and...
Many employers look to student workers to temporarily fill staff positions, especially through internships, as summer recesses begin.
To stay compliant with federal and state labor laws, however, employers should examine their needs and follow proper guidelines in their treatment of interns.
While there are general rules that payroll departments must follow, most internships are employment relationships that involve wage and hour laws and special tax requirements. For payroll processing, new employees fill out Form W-4, Employee's Withholding Allowance Certificate. Employers should be aware that an employee who works for part of a year may request that the employer withhold taxes under the part-year method. The federal minimum wage is $7.25 an hour, though some states have different wage rates.
The Labor Department's Wage and Hour Division developed a fact sheet with six factors to evaluate whether a trainee, intern, apprentice, graduate assistant, or similar individual is considered an employee:
•The internship, even though it includes operation of the employer's facilities, is similar to training found in an educational environment.
•The experience is for the benefit of the intern.
•The intern does not displace regular employees, but works under close supervision of the staff.
•The employer that provides the training derives no immediate advantage from the intern's activities and at times its operations may be impeded.
•The intern is not entitled to a job at the end of the program.
•The employer and intern understand that no wages are provided for the time spent in the internship.
If these six factors, published in a 2010 fact sheet, all are met, then an internship relationship exists and the FLSA minimum wage and overtime provisions do not apply.
In 2015, the U.S. Court of Appeals for the Second Circuit adopted a primary beneficiary test to determine if interns were employees under federal and state wage and hour laws.
The Labor Department asked the appeals court to follow the six-factor test and its requirement that every factor be present before an internship may be unpaid. The appeals court declined to defer to the test, calling it “too rigid for our precedent to withstand.” Instead, the court said the question was whether the intern or the employer was the primary beneficiary of the relationship. The court provided a list of factors to help answer that question. If the intern was the primary beneficiary, the court said he or she was not an employee.
Here are the court's list of factors for a nonpaying internship:
•The intern and the employer clearly understand that there is no expectation of compensation, with any promise of compensation, express or implied, suggesting that the intern is an employee, and vice versa.
•The internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
•The internship is tied to the intern's formal education program by integrated coursework or the receipt of academic credit.
•The internship accommodates the intern's academic commitments by corresponding to the academic calendar.
The internship's duration is limited to the period in which the internship provides the intern with beneficial learning.
•The intern's work complements, rather than displaces, the work of paid employees while providing educational benefits to the intern.
•The intern and the employer understand that the internship is conducted without entitlement to a paid job at the end of the internship.
“Applying these considerations requires weighing and balancing all of the circumstances,” the court said. “No one factor is dispositive and every factor need not point in the same direction for the court to conclude that the intern is not an employee entitled to the minimum wage.”
Employers that plan to create or continue an internship program should keep these points in mind:
•The program should be of a fixed length, confirmed before the start.
•Interns are covered by FLSA minimum wage and overtime rules if the employer considers them substitutes for regular workers or uses them to augment its existing workforce during specific periods.
• FLSA requirements would apply if interns were engaged in employer operations or were performing productive work, such as filing, other clerical work, or assisting customers. In such instances, the employer would benefit from the interns' work.
•Job shadowing is likely to be viewed as an education experience if an employer allowed an intern to learn certain functions under close supervision by regular employees and the intern performed minimal work or no work. However, interns who receive the same level of supervision as the employer's regular workers would suggest an employment relationship rather than a training relationship.
For more information, see PAG's “FLSA Exemptions“ chapter.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)