Intern or employee? US Department of Labor clarifies.

There are new rules to determine when an intern is an employee.

Employers are required to classify workers within the bounds of the law. Misclassification can result in serious repercussions for the employer. Employers that are accused of misclassification of employees as independent contractors, for example, can face monetary fines including 40 percent of Social Security and Medicare taxes (FICA) that were not withheld from the employee as well as 100 percent of the FICA taxes that were the obligation of the employer and an additional 25 percent penalty for the total tax liability.

The Internal Revenue Service (IRS) uses these penalties in an effort to deter employers from violating these laws. Unfortunately, the rules that govern worker classification are rarely easy. The issue is further complicated by the fact that the rules can change. The United States Court of Appeals for the Ninth Circuit provides a recent example. The court rejected the six-part test used by the Department of Labor to determine whether students were employees or interns under the Fair Labor Standards Act (FLSA). Instead, the agency is now expected to use the "primary beneficiary" test to make this determination.

What is the "primary beneficiary" test? This test involves a review of seven different factors to determine if the worker is a student intern or an employee. These factors are:

  • Expectation of compensation
  • Training, such as clinical or hands-on experience
  • Integrated coursework and academic credit
  • Following the academic calendar
  • Relationship limited to period when intern receives educational benefit
  • Intern's work compliments, not displaces, paid employee's work
  • No promise of a paid position at the end of the internship

The test is flexible, meaning no single factor will impact the result.

What does this mean for internship programs? Internship programs run by for-profit facilities are wise to review their program. A failure to comply with the primary beneficiary test could result in a legal challenge to the status of the interns that partake in the program. This could lead to serious penalties for the employer.

What does this mean for students? An intern can now hold an employer responsible for violating FLSA laws.

It is wise to seek legal counsel in the event that you are taking part in an internship and believe your rights under the FLSA are violated. If the program fails the primary beneficiary test noted above, you should receive the protections granted under FLSA. Protections like minimum wage and overtime pay. Legal remedies are available and can include compensation for time worked and correction of the issue.