With high schools and colleges nearing the end of this academic year, I thought it would be a good time to remind my readers of the rules regarding whether an intern must be paid at least the federal minimum wage for all the hours he or she works. In my post last year on this subject, I discussed the change made by the U.S. Department of Labor (“USDOL”) in January 2018 that made it easier for interns to be exempted from the minimum wage requirements of the Fair Labor Standards Act (“FLSA”). The test now used to make that determination focuses on the “economic reality” of each particular internship situation.
If the primary beneficiary of the relationship is the employer, the intern is subject to the requirements of the FLSA. If the intern is the primary beneficiary of the relationship, they are not subject to those requirements. An intern who is subject to the requirements of the FLSA must be paid at least the federal minimum wage for each hour worked and overtime pay for each hour worked in excess of 40 in any one work week. No compensation of any kind need be paid to an intern who is not subject to those requirements.
The USDOL has developed a seven factor test to make the above determination (click here for a list and explanation of those factors). The test is a balancing one, with no one factor being determinative. The fact that an employer benefits from the services provided by an intern does not automatically make the intern subject to the requirements of the FLSA. Instead, in the words of the 11th Circuit Court of Appeals, an employer would have to have “unfairly taken advantage of or otherwise abused” the intern relationship before the intern would be considered subject to those requirements. That is a high standard to meet. Only those relationships from which the intern derives very little, if any, benefit will likely qualify as ones subject to the requirements of the FLSA.
One way to make sure an intern derives benefit from the relationship sufficient to satisfy the USDOL test is to have the duties performed by the intern be consistent with a “formal education program” that is being undertaken by the intern. Thus, a person who is studying insurance or risk management in high school or college would naturally benefit from working at an insurance agency. Where the intern is not involved in any related “formal education program”, the agency should strive to structure the relationship between it and the intern as if that was the case, i.e., provide the intern with learning opportunities of the same type as found in such programs related to the insurance business.
The rules that now apply to the payment of interns have made it less risky for agencies to hire unpaid or less than minimum wage paid interns to give them a taste of the insurance business. Those rules should be taken advantage of to help generate more interest in careers in insurance among the younger generation.