Question: I run a small business and regularly use summer interns because they offer low- or no-cost labor in return for work experience they can put on their resumes.  However, I recently heard that interns may have to be paid at least minimum wage.  Is that true?
Answer: While the use of unpaid interns may be common practice for many for-profit private sector employers, specific rules apply to determine whether that practice is lawful under state and federal employment laws.
As explained by the Wage and Hour Division of the U.S. Department of Labor (DOL), internships in the “for-profit” private sector are usually viewed as “employment,” meaning the intern is entitled to minimum wages and overtime compensation under the federal Fair Labor Standards Act (FLSA) unless all six of the following six factors are satisfied:

  1. 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;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. 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;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If all six factors are met, the intern is not considered an “employee” and is not entitled to minimum wages and overtime compensation. The California Division of Labor Standards Enforcement also applies this same six-factor test.
According to the DOL, the more an internship program is structured around a classroom or academic experience as opposed to the employer’s actual operations, the more likely the internship will be viewed as an extension of the individual’s educational experience, such as where a college or university oversees the internship program and provides educational credit.
The DOL further explains that the more the internship provides the individual with skills that can be used in multiple employment settings, as opposed to skills particular to one employer’s operation, the more likely the intern would not be classified as an “employee.”  In such cases, the intern does not perform the routine work of the business on a regular and recurring basis, and the business is not dependent upon the work of the intern.
However, according to the DOL, if the interns are performing productive work, such as filing, other clerical work, or assisting customers, then the fact that they may be receiving some benefits in the form of new skills or improved work habits will not exclude them from the FLSA’s minimum wage and overtime requirements because the employer benefits from the interns’ work.  Interns in California who do not meet the DOL requirements are employees and are entitled to minimum wage and overtime at the California minimum wage rate (currently $10.00 per hour.)
California employers should keep in mind that the California Department of Fair Employment and Housing’s prohibitions against discrimination and harassment under the Fair Employment and Housing Act also apply to unpaid interns.
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