CPA Practice Advisor - 19

A YEAR IN THE LIFE: PAYROLL ACCOUNTANT

Think Twice Before Not Paying
Summer Interns
By Lisa Fagan

SUMMER IS RAPIDLY approaching. Many
employers hire interns during the summer
to help out around the office. Interns can gain
valuable work experience to include on their
resumes - but some employers do not intend
to pay them. This could be a costly mistake if
the unpaid interns are entitled to pay under
either federal or state wage and hour laws.
Employers who are considering offering an unpaid
internship program should take a look at case law and federal and state rules before doing so. In 2010, the DOL's Wage
and Hour Division (WHD) issued a fact sheet (https://bit.
ly/1sayFho) to help employers determine whether interns
must be paid minimum wage and overtime. The guidance
outlined a six-factor test for making this determination:
■ 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.
■ The internship experience is for the benefit of the intern.
■ The intern does not displace regular employees, but works
under the close supervision of the 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.

PRIMARY BENEFICIARY TEST
The tide began to turn against the six-factor test and
towards a test that examined who was the primary
beneficiary of the internship relationship with the U.S.
Court of Appeals for the Second Circuit's opinion in Glatt
v. Spotlight Searchlight Pictures, Inc. in 2015. In that case,
involving interns at a movie production company, the
court declined to follow DOL Fact Sheet #71 to determine
whether the interns should have been paid. It pointed out
that the fact sheet is based on a 67-year-old federal case on
unpaid railroad brakemen trainees that didn't apply to all
workplaces. For example, the interns in Glatt, unlike the
brakemen, were enrolled in or had recently completed a
formal course of post-secondary education.
Instead, the Glatt court enumerated a list of factors
that put more reliance on who is the primary beneficiary
in the relationship. This new test said that the court should

look at factors such as the extent to which:
■ The intern and employer understand that there is no
expectation of compensation (which can support a finding
that the intern is an employee);
■ The internship provides training that would be similar to
that which would be given in an educational environment;
■ The internship is tied to the intern's formal education program
by integrated coursework or the receipt of academic credit;
■ The internship accommodates the intern's academic
commitments by corresponding to the academic calendar;
■ The internship's duration is limited to the period in which
the internship provides the intern with beneficial learning;
■ The intern's work complements, rather than displaces,
the work of paid employees while providing significant
educational benefits to the intern; and
■ The intern and the employer understand that the internship is conducted without entitlement to a paid job at the
conclusion of the internship.
Additionally, the court added that no one factor was
dispositive, and that the list was not exhaustive. Courts
should consider any relevant evidence that goes beyond
those enumerated.
More court decisions followed that adopted the "primary
beneficiary test," including Mark v. Gawker Media, LLC, DC
NY, (2016); Schumann v. Collier Anesthesia, P.A., CA 11,
(2015); and Benjamin v. B&H Education, Inc., CA 9, (2017).

DOL ADOPTS PRIMARY BENEFICIARY TEST
The DOL subsequently issued a revised Fact Sheet #71:
Internship Programs Under the Fair Labor Standards Act
(https://bit.ly/1sayFho), in 2018. The revised Fact Sheet
adopts the factors set forth in the Glatt decision. The Fact
Sheet explains that if analysis of these circumstances
reveals that an intern or student is actually an employee,
then he or she is entitled to both minimum wage and overtime pay under the FLSA. On the other hand, if the analysis
confirms that the intern or student is not an employee,
then he or she is not entitled to either minimum wage or
overtime pay under the FLSA.
The bottom line is that any internship applications or
job offer letters should specifically state whether or not it
is an unpaid internship and if the intern is entitled to a
job at the end of the internship. The application and job
offer letters should be different from those provided to
regular employees. ■
Lisa Fagan is Editor of Tax Products for Thomson Reuters. This
article first appeared on the Thomson Reuters blog:
https://tax.thomsonreuters.com/blog.

JUNE 2019 ■

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