Internship Programs: Legal Requirements for Employers

Internship programs serve as a crucial bridge between education and employment, offering students and recent graduates the opportunity to gain hands-on experience in their chosen fields. These programs provide interns with the chance to apply theoretical knowledge in real-world settings, develop industry-specific skills, and build a professional network that can assist them in their career advancement. For employers, internship programs offer a unique opportunity to engage with fresh talent, benefit from new perspectives, and potentially identify future employees.

Interns bring enthusiasm and a willingness to learn, often contributing to the workplace in innovative ways. This mutual exchange of value makes internship programs highly beneficial for both parties. However, in order for these programs to be effective and legally sound, employers must navigate a variety of legal requirements to ensure compliance with labor laws.

Paid vs. Unpaid Internships

When designing an internship program, one of the first questions employers must answer is whether the internship will be paid or unpaid. This distinction is critical from a legal standpoint, as it determines whether interns are entitled to wages and other employment benefits.

Paid internships are those where the intern is treated as an employee under California’s labor laws, meaning they must receive at least the minimum wage, overtime pay (if applicable), and other employee benefits. These internships typically involve tasks and responsibilities that benefit the company directly, similar to those performed by regular employees.

Unpaid internships, on the other hand, are only permissible under very specific conditions. In these cases, the primary benefit of the internship must go to the intern, with the opportunity being more akin to an educational experience than standard employment. If an internship fails to meet these criteria, the intern must be paid under state and federal labor laws.

California’s Wage Laws for Internships

In California, most internships should be paid unless they meet specific legal criteria to be classified as unpaid. California has some of the strictest wage laws in the country, and employers must be cautious when structuring unpaid internships to avoid legal consequences.

To legally offer an unpaid internship, employers must ensure that the internship is primarily for the benefit of the intern, not the company. The intern must not displace regular employees or perform tasks that would otherwise be done by paid staff. In addition, the intern must receive training or mentorship that is similar to what they would receive in an educational environment. Without meeting these strict criteria, the internship is likely to be classified as paid employment, subject to California’s minimum wage and overtime laws.

The Role of the Fair Labor Standards Act (FLSA)

At the federal level, the Fair Labor Standards Act (FLSA) plays a key role in determining whether an intern is entitled to compensation. The FLSA outlines the “primary beneficiary” test, a flexible framework used to assess whether the intern or the employer is the main beneficiary of the internship experience.

Under this test, courts consider several factors, such as whether the internship provides educational benefits, whether it is tied to academic coursework, and whether the intern’s work complements (rather than displaces) paid employees. The more an internship resembles an educational experience, the more likely it is to be classified as unpaid. If the intern primarily benefits from the opportunity, and the employer derives little to no immediate advantage, the internship may be unpaid. However, if the employer is the primary beneficiary, the intern must be compensated under wage laws.

Key Legal Requirements for Unpaid Internships

The “Primary Beneficiary” Test

The Primary Beneficiary test, established under the Fair Labor Standards Act (FLSA), helps determine whether an internship should be classified as unpaid or whether the intern should be treated as an employee entitled to compensation. This test examines several factors to assess who benefits most from the internship—the employer or the intern. These seven factors must be carefully considered by employers offering unpaid internships:

1. Educational Experience and Alignment with Academic Credit: The internship should provide educational benefits similar to what the intern would gain in a classroom setting. If the internship is tied to the intern’s academic coursework or provides college credit, this weighs in favor of the intern being the primary beneficiary.
2. Expectation of Compensation: There should be a clear understanding between the intern and the employer that the internship is unpaid. If there is any expectation of payment or employment after the internship, it is more likely that the intern should be compensated.
3. Similarity to Training Offered in an Educational Environment: The internship should offer training that parallels academic instruction. If the intern receives hands-on training that benefits their education, this supports the classification of an unpaid internship.
4. Limited Duration of the Internship: The internship should have a defined start and end date, ensuring it is temporary. Long-term internships that do not have a clear end may suggest that the intern is providing work similar to that of an employee.
5. No Displacement of Regular Employees: The intern should not replace or perform the same tasks as regular employees. The work they perform should complement the existing workforce, not take on essential duties that would otherwise require paid labor.
6. Mutual Understanding that the Internship is Unpaid: Both the intern and the employer must understand from the outset that the internship is unpaid. This agreement should be documented, and there should be no expectation of payment or future employment.
7. The Internship Provides the Intern with More Benefit than the Employer: If the intern is the primary beneficiary of the experience through educational gains and career development, the internship is more likely to meet the criteria for being unpaid. Conversely, if the employer derives significant operational benefit from the intern’s work, compensation is likely required.

California-Specific Rules for Unpaid Internships

California labor laws impose stricter requirements on unpaid internships than federal regulations. Even if an internship meets the FLSA’s Primary Beneficiary test, California law may still require compensation, particularly if the intern is performing tasks that would normally be assigned to paid employees.

• Minimum Wage and Overtime Laws: California’s minimum wage laws apply to nearly all workers, including interns, unless they qualify for an exemption. If an intern is found to be providing work that directly benefits the employer or displaces regular employees, they must be paid at least California’s minimum wage and are entitled to overtime pay if they work more than 8 hours a day or 40 hours a week.
• Academic Credit Requirements: In California, unpaid internships are more likely to be legal if they are tied to an educational program or provide academic credit. The internship must be structured in a way that benefits the intern’s education, similar to a classroom experience, rather than primarily benefiting the employer.

Paid Internships and Wage Compliance

When an Intern Qualifies as an Employee

If an internship fails to meet the criteria outlined under the Primary Beneficiary test or California’s specific guidelines for unpaid internships, the intern must be classified as an employee. This means they are entitled to full employee rights, including payment for the hours they work.

In many cases, even if the internship offers educational benefits, if the intern performs tasks that directly benefit the employer—such as handling administrative duties, working on projects, or performing roles that a paid employee would typically handle—the intern qualifies as an employee. Once classified as an employee, the intern must be compensated according to California’s labor laws, which include minimum wage, overtime, and certain benefits.

California’s Minimum Wage and Overtime Laws

California has one of the highest minimum wage standards in the United States, and all paid interns are subject to these laws. The minimum wage requirements are as follows:

• As of January 1, 2024, the minimum wage in California is $16 per hour for all employers, regardless of size.

If a paid intern works more than 8 hours in a day or more than 40 hours in a week, they are entitled to overtime pay:

• Overtime rate: 1.5 times the regular hourly rate for hours worked over 8 in a day or 40 in a week.
• Double-time pay: If the intern works more than 12 hours in a day, they must be compensated at twice their regular hourly rate for those additional hours.

Employers need to track hours carefully and ensure that interns receive appropriate compensation for all time worked, including overtime when applicable.

Other Benefits for Paid Interns

In addition to meeting minimum wage and overtime requirements, interns classified as employees in California may also be entitled to certain benefits, just like other regular employees. These benefits help ensure that interns are treated fairly and protected under labor laws.

1. Workers’ Compensation: Paid interns are covered under California’s workers’ compensation laws, which means they are entitled to benefits if they are injured on the job. Employers must have workers’ compensation insurance in place to cover these potential claims.
2. Rest Breaks and Meal Periods: Interns are entitled to rest breaks and meal periods. For every 4 hours worked, interns must receive a 10-minute paid rest break. Additionally, interns working more than 5 hours in a day must receive a 30-minute unpaid meal break.
3. Paid Sick Leave: California law mandates that all employees, including interns, accrue paid sick leave. Interns earn at least 1 hour of paid sick leave for every 30 hours worked, which can be used for personal illness or to care for a family member.
4. Other Employment Benefits: Depending on company policies, paid interns may also be eligible for other benefits typically offered to employees, such as access to health insurance, vacation time, or retirement savings plans, though these are not required by law.

Academic Credit and Internship Agreements

Ensuring Educational Value

To meet legal criteria and provide meaningful experiences, internships must offer educational value that complements the intern's academic program. Employers should focus on designing internship programs that help interns develop specific skills, gain industry insight, and apply classroom knowledge in a professional setting.

When offering unpaid internships, aligning the program with educational goals is especially critical. These internships should provide training and learning opportunities akin to those offered in an academic setting, rather than assigning the intern work that primarily benefits the company. By ensuring that the intern receives hands-on experience and mentorship in their field of study, employers can justify the unpaid nature of the internship while offering value to the intern.

Partnerships with academic institutions are a great way to formalize the educational aspect of an internship. Many universities and colleges require their students to complete internships for academic credit. Partnering with these institutions allows employers to create programs that meet both the institution’s academic standards and legal requirements. Additionally, ensuring that the internship can be credited toward a student’s degree reinforces the educational intent of the program and strengthens its legitimacy as an unpaid opportunity.

Formal Internship Agreements

One of the most important steps in ensuring that an internship program runs smoothly is drafting a formal internship agreement. This written document outlines the roles, responsibilities, and expectations of both the intern and the employer. An agreement helps protect both parties by clearly defining the scope of the internship and ensuring transparency throughout the program.

Key components of a formal internship agreement include:

• Internship duration and schedule: Clearly define the start and end dates of the internship, as well as the expected working hours. This helps both the employer and intern understand the time commitment and avoid any misunderstandings.
• Duties and responsibilities: Specify the tasks and duties the intern will be responsible for during the internship. This ensures that the intern’s role aligns with their educational goals and prevents any confusion about their daily responsibilities.
• Learning objectives: Clearly outline the learning outcomes expected from the internship. These objectives should reflect the educational value the intern will gain and tie back to their academic studies or career aspirations.
• Compensation and benefits: If the internship is paid, the agreement should outline the intern’s hourly wage or stipend, as well as any applicable benefits such as paid sick leave or workers' compensation. If unpaid, the agreement must clearly state that the internship is unpaid and emphasize that the primary benefit is educational.
• Mentorship and supervision: Identify who will serve as the intern’s mentor or supervisor during the program. This person should be responsible for providing guidance, feedback, and support to ensure the intern’s learning experience is productive.
• Academic credit (if applicable): If the intern is receiving academic credit, the agreement should outline the academic institution’s requirements and expectations, as well as how the internship will fulfill those requirements.

Non-Discrimination and Harassment Laws

Equal Protection Under Employment Law

California law, particularly under the California Fair Employment and Housing Act (FEHA), guarantees that interns are protected from workplace discrimination and harassment. These protections apply to both paid and unpaid interns, making it imperative for employers to ensure their compliance regardless of compensation status.

Interns are safeguarded against discrimination based on several protected characteristics, including:

• Race
• Gender and gender identity
• Sexual orientation
• Religion
• National origin
• Age
• Disability
• Pregnancy
• Marital status

Harassment protections also apply, which means interns are entitled to work in an environment free from any form of harassment, including sexual harassment. The law also protects interns from retaliation if they file a complaint or participate in an investigation related to harassment or discrimination.

Employers must recognize that the legal standards that apply to their full-time employees also extend to interns, ensuring that all interns are afforded the same protections as other staff members.

Masoom Law Firm

Establishing a legally compliant internship program requires a thorough understanding of both federal and state labor laws. At Masoom Law Firm P.C., our experienced legal team can help you navigate the complexities of internship regulations to ensure your program provides valuable opportunities for interns while protecting your business from potential legal risks. Contact us today at 408-599-3191 or visit our website at https://www.masoomlaw.com/ to schedule a consultation.