FLSA Pitfall: Misclassification of Unpaid Interns

August 4, 2015

Satellite radio provider, Sirius XM just entered a $1.3 million dollar settlement with interns who claimed they were actually employees entitled to compensation under the Fair Labor Standards Act (FLSA).  This figure is merely a drop in the bucket compared to the billions in revenue the company has generated in recent years.  Just the same, it illustrates the need for employers to be certain that they are properly classifying workers as unpaid interns.

The Department of Labor considers the following factors in determining whether a worker can legitimately be classified as an unpaid intern in the “for-profit” private sector:

  1. 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;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. 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;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If these requirements are met with regard to a given worker, the individual may be treated as an unpaid intern to whom the minimum wage and overtime pay requirements of the FLSA do not apply.

For more information, see DOL fact sheet #71:  http://www.dol.gov/whd/regs/compliance/whdfs71.htm