Students and recent graduates are often willing to work for experience rather than pay as an entre into their chosen profession. Likewise, employers relish the thought of offering on-the-job training without pay. While on the surface it seems to be a win/win situation, internships and volunteerism will violate federal law unless they satisfy certain criteria.

Ordinarily, most employers must pay their employees minimum wage and overtime as required by the Fair Labor Standards Act (FLSA). Courts have held that determining whether a student intern is an employee under the FLSA is subject to an “economic reality test.” Under that economic reality test, the key issue is whether the intern did work that was of economic benefit to the employer, and whether any benefits to the company were outweighed by the burdens of training an inexperienced student or by the benefits to the student. The U.S. Department of Labor (DOL) has issued guidance to aid in the analysis of whether any students who are interns or those who volunteer their time are in fact “employees” under the economic reality test.

Only not-for-profit entities can engage volunteers. Individuals can donate their time and efforts for religious, charitable, civic, or humanitarian purposes to nonprofit organizations provided they do so freely and without anticipation of compensation. The DOL defines a volunteer as an individual “who donate[s] [his or her] services, usually on a part-time basis, for public service, religious or humanitarian objectives, not as employees and without contemplation of pay.”

An intern, on the other hand, may work either in a for-profit or a not-for-profit setting. The DOL has made it clear that in a for-profit setting, it will presume coverage under the FLSA unless the individual fulfills the following six criteria to be deemed an intern:

  • The internship, even though it includes actual operation of the facilities of the employer, is similar to training that would be given in an educational environment
  • The internship experience is for the benefit of the intern
  • The intern does not displace regular employees, but works under close supervision of existing staff
  • 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
  • The intern is not necessarily entitled to a job at the conclusion of the internship
  • The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship

While the basic difference between an intern (where the work is primarily for the benefit of the worker) or a volunteer (where the work is primarily for the benefit of the not-for-profit institution) often blur, the consequence is the same — the worker will be exempt from minimum wage and overtime coverage under the FLSA.

For those employers in the for-profit arena, the DOL has warned that it will scrutinize whether the worker fulfills all six of the above criteria. If not, it will pursue enforcement of the wage and hour laws.