If your interns are “employees,” they are subject to the Fair Labor Standards Act (FLSA) and must be paid at least the minimum wage. Interns may be exempt from the requirements of the FLSA if they can be categorized as “trainees” as defined under the law.

In determining whether an intern is a trainee rather than an employee, the Department of Labor (DOL) has consistently applied the following six-criteria test, derived from a U.S. Supreme Court decision Walling v. Portland Terminal Co.:

• The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school.
• The training is for the benefit of the trainee.
• The trainees do not displace regular employees and work under close observation.
• ****The employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion, the employer’s operations may actually be impeded.
• The trainees are not necessarily entitled to a job at the completion of the training period.
• The employer and the trainee understand that the trainee is not entitled to wages for the time spent in training.

In addition, in a 1983 Opinion Letter, the DOL determined that student interns would not be considered employees if they receive college credit for “an internship which involves the students in real-life situations and provides the students with educational experiences unobtainable in a classroom setting.” In a 1988 Opinion Letter, the DOL stated that students would not be considered employees when internship programs are "designed to provide students with professional experience in the furtherance of their education and training and are academically oriented for their benefit."

An academic credit requirement does not necessarily mean that a company is absolved of any requirement to pay the interns; the DOL’s six criteria still apply. Therefore, if interns fail to meet any of the above criteria, they should be paid as employees—at least minimum wage and overtime compensation when earned. Although earning class credit for the internship benefits the intern and can be required by the employer, class credit is not considered wages and should not be substituted for wages.

DOL opinion letters provide some guidance on when interns must be paid, but it is usually a good idea to consult legal counsel when designing and implementing an internship program.

Interns may also be treated as independent contractors rather than employees, but only if they are, in fact, independent contractors. The Internal Revenue Service provides guidance on determining whether a worker is an independent contractor or an employee. The DOL provides further guidance on independent contractors, volunteers and FLSA coverage.