HR Tip of the Month – Primary Beneficiary Test

Employers should use a test — called the primary beneficiary test — when determining if a worker can be properly classified as an unpaid intern or if they need to be classified as an employee and paid at least minimum wage and overtime. Before hiring an unpaid intern, employers should consider the following:

  • 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.
  • 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.
  • The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  • The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  • The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  • 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.
  • 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.

No single question will disqualify the worker from being classified as an unpaid intern. Instead, the employer should look at the answers as a whole. If in doubt, do not classify the employee as an unpaid intern.

Article content provided by My HR Support Center

Keep an Eye on these Important Employee Issues!

The US economy continues to surge forward. Many companies are expanding and hiring new employees. This is generally great news. However, hiring new staff can make payroll management (already a challenge for many firms) far more difficult. If your firm is in the hiring cycle keep an eye on the following three critical employer issues:

1. Increased Employer Costs

Most employers understand they must withhold taxes from employee checks. However, employer taxes such as Social Security, Medicare and unemployment tax are your firm’s financial obligation. These employer tax burdens increase with each new hire. Additionally, firms should consider their increased worker’s comp and benefit costs when hiring new employees.

2. Proper Employee classification

Employee misclassification is always a hot IRS topic. However, in recent years the DOL has also entered agreements with many state agencies to cooperate in pursuing enforcement against employers for misclassification of employees as independent contractors.

Independent contractor misclassification isn’t the only type of misclassification on the government’s enforcement radar. Special attention must also be paid to regulations regarding the determination of whether employees qualify for the “white-collar” exemptions from the FLSA’s minimum wage and overtime requirements. Employers must ensure compliance with minimum salary requirements and worker “duties” tests.

3. Recordkeeping

The DOL requires every employer covered by the FLSA to keep time clock records for each nonexempt worker. The law doesn’t specify the form of records, but they must include certain identifying information including the employee, the hours worked and the wages earned. Payroll records should be retained for at least 4 years including records for wage computation. These records include time cards, wage rates and records of additions or deductions from wages.

Ongoing challenges

Employers must remain vigilant regarding changes to federal and state laws/regulations that affect payroll taxes and other employee compensation issues. Do NOT assume you can put payroll management on autopilot!

©2019 Thomson Reuters