The U.S. Department of Labor has just done employers and interns a big favor. They have issued a new test for determining whether an individual is classified as an intern or a paid employee. The test creates a nationwide standard as well as replacing the previous test used by employers. This new test is known as the 'primary beneficiary test'.
According to the Fair Labor Standards Act (FLSA), any employer operating as a for-profit organization is required to pay employees for their work. The one exception are interns. Prior to the DOL issuing their new test, employees referred to an older six-question test to determine intern status.
Old Test vs. New
At first glance, it might seem that the old six-question test was a better test. Employers had to answer all six questions affirmatively in order to classify a position as an internship. The seemingly black-and-white test was based mainly on the concept of whether the employer received a material benefit from the proposed internship, making that position actual employment if said benefit was received.
As a company offering payroll processing and benefits management services to businesses nationwide, we know that the test's focus on material benefit left too many gray areas for employers to consider. In fact, there was never clear consensus on what a material benefit actually is. Even though employers had to answer all six questions in the affirmative to classify an individual as an intern, circumstances often dictated that answers to the 'yes' or 'no' questions were more likely to be 'maybe'.
The new test is a seven-question test that shifts the focus from a material benefit for the employer to an educational benefit for the employee. The primary beneficiary test does not ask about material benefits to the employer at all. At least four of the questions on the new test address the educational and training aspects of the job in question.
Most importantly, an employer does not have to answer all seven questions on the new test in the affirmative. Rather, they can look at all their answers, as a whole, to determine the intent of the position being offered and the educational benefits that position offers the prospective intern.
The Seven Questions
It is important to note that a number of courts, including the Ninth Circuit Court of Appeals, have been using the primary beneficiary test for some time now. Making it the official test recommended by the DOL simply took what appellate courts have been doing and codified as a national standard.
In determining whether an offer position qualifies as an internship or not, employers must consider the following seven things:
- The understanding between parties that the position offers no compensation.
- The extent to which the position offers training or education similar to what would be offered in an educational environment.
- The extent to which an internship is integrated with the intern's formal education.
- The extent to which an internship satisfies the intern's academic commitments.
- The extent to which the duration of the internship provides the intern with beneficial learning.
- The extent to which the internship complements work being done by paid employees while still providing educational opportunity.
- The understanding between intern and employer that the internship does not imply entitlement to future paid employment.
All BenefitMall clients should not hesitate to reach out to their BenefitMall representative in the event they have questions about internships. We can help you figure out employee classification, then ensure all qualifying employees are paid exactly what is due them.
U.S. Department of Labor – https://www.dol.gov/whd/regs/compliance/whdfs71.htm