Posted on Author AKC Law Categories Featured Updates, Employment

By Julie M. Ryan

Among other things, the Fair Labor Standards Act (“FLSA”) sets forth federal requirements for minimum wage and overtime pay protections for employees. A company must be familiar with the ins and outs of the FLSA as applied to its workforce for its day-to-day business.

Failure to comply with the FLSA may subject your business to civil money penalties for noncompliance and potential litigation. For example, under the FLSA, employers who willfully or repeatedly violate the minimum wage or overtime pay requirements may be penalized up to $1,000 for each violation.

Many for-profit businesses offer internships, for a whole host of reasons that may range from helping to meet immediate operational needs and supporting educational initiatives for the local community to long-term business growth goals.

One of the items a company with interns will need to address is whether the internship position will be paid or unpaid and, if paid, at what rate and for how many hours per workweek. The answer to the initial question must involve an analysis of whether the intern is an “employee” under the FLSA. If the intern constitutes an “employee” under the FLSA, then that employee—even despite the internship position worked—is entitled to the minimum wage and overtime pay, among other FLSA protections and other protections under federal, state, and local laws and regulations. If the intern is not an employee under the FLSA, then the FLSA does not require the intern to be compensated.

Courts have considered the following factors when determining whether an intern or trainee is really an employee for purposes of the FLSA:
  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
  2.  The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

For example, if the internship is tied to the intern’s formal education program, then that is a factor that suggests the intern is not an employee under the FLSA.

When considering these factors, courts ask whether the intern or the employer is the “primary beneficiary” of the relationship. The intern is the “primary beneficiary” and no employment relationship is created under the FLSA when the tangible and intangible benefits that the intern receives from the position are greater than the intern’s contribution to the business. Every situation is unique, and courts have stated that no one factor will determine the outcome.

If an intern does not qualify as an employee under the FLSA, the company still must do a similar analysis to determine whether the intern is an employee under various state and local laws and determine pay and work hour state or local law requirements, if any.

Interns are most likely considered employees under various Nebraska laws. For example, the Nebraska Fair Employment Practice Act, which prohibits certain employment discrimination, simply defines an employee as an “individual employed by an employer”, and the Nebraska Wage Payment and Collection Act concerning payroll laws defines an employee as someone who is “permitted to work by an employer pursuant to an employment relationship”; neither Act explicitly carves out interns. As another example, under the Nebraska Wage and Hour Act, employers that have student-learners as part of a bona fide vocational training program must pay the student-learners at least 75% of the minimum wage rate that would otherwise be applicable. The Nebraska minimum wage rate is currently $12.00 an hour and will increase to $13.50 per hour on January 1, 2025.

For more information, please contact Julie M. Ryan at [email protected] or 402.392.1250.