Every spring many companies begin to think about hiring college and/or high school students as summer interns and each year many companies ask the age old question: “Do we have to pay our summer interns?”

Early in January 2014, a federal court granted preliminary approval to a $450,000 settlement between a modeling agency and its former interns as a result of a collective class action claiming that the company intentionally misclassified employees as interns to avoid paying wages and overtime.

In deciding whether or not to pay interns make certain that the interns are classified correctly under the Fair Labor Standards Act (FLSA). The Department of Labor (DOL) offers a Six Factor Test for Intern Pay to aid companies in determining correct classification as interns.

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1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training that 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 all of these factors are met, then the employer and intern do not have an “employment relationship” and therefore, the FLSA’s minimum wage and overtime pay requirements are not applicable.

If any one of these factors is not met, the DOL normally views the intern as an employee and must be paid at least minimum wage and overtime compensation for hours worked over 40 in a work week.

If interns are learning skills that can be used in multiple settings and are not specific to the employer’s operation, the more likely the internship would be viewed as training as the intern is not performing the routine work of the business on a regular and recurring basis.

The employer should establish a fixed duration of time, providing a beginning and end date before the intern begins training. Unpaid internships should not be created by the employer as a trial period for individuals seeking employment at the end of the internship as under the FLSA, the intern would be considered an employee.