Independent Contractor Agreement

control over schedule and manner of work

If the person is economically dependent and under the company’s control, they are an employee and must be paid minimum wage in cash.

Internship 7-factor DOL primary-beneficiary test

The U.S. Department of Labor (DOL) uses the 7-factor “primary beneficiary” test to determine whether an unpaid intern or trainee at a for-profit company is truly an intern (who can be unpaid) or is actually an employee who must receive at least minimum wage and overtime under the FLSA.

This test came directly from the Second Circuit’s 2015–2018 rulings (Glatt v. Fox Searchlight, Wang v. Hearst, etc.) and was officially adopted by the DOL in January 2018 (Fact Sheet #71) and reaffirmed ever since. No single factor is decisive; courts and the DOL look at the totality of the circumstances and ask: Who is the primary beneficiary of the relationship — the intern or the company?

The 7 Factors (exact DOL wording with practical explanation)

#	Factor (DOL language)	What it really means in practice	Red flags that the company is the primary beneficiary (→ must pay)
1	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.	Both sides must genuinely agree up front — in writing — that it is unpaid.	Verbal or written hints of “we’ll pay you later,” equity, stock options, or “this will turn into a job.”
2	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 experience must look like a class or vocational school, not just doing the company’s regular work.	Intern does the same tasks as regular employees (answering phones, data entry, coding production features, cold-calling leads).
3	The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.	Best evidence: the intern gets school credit and the school supervises or signs off.	No connection to a college/university/trade school at all.
4	The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.	Internship follows semesters, quarters, or summer break.	Year-round or full-time during the school year with no accommodation.
5	The extent to which the internship’s duration is limited to the period during which the internship provides the intern with beneficial learning.	Has a clear end date tied to learning objectives (usually one semester or summer).	Indefinite, “until we can hire you,” or keeps getting extended.
6	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 intern is an extra set of hands for learning, not replacing a paid worker.	Intern is staffed on projects like a regular employee; paid employees are laid off or not hired because interns do the work.
7	The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion.	No promise or strong expectation of a job offer at the end.	“Everyone we like gets hired,” conversion statistics >80%, or written language about future employment.

Practical Reality in 2025

• If the intern is doing productive work that has immediate value to the company (coding features, designing marketing materials, cold-calling, customer support, etc.) and the company gets more benefit than the intern, courts and the DOL almost always rule the person is an employee who must be paid.
• Most for-profit startups and private companies fail this test when they have “unpaid interns” who work more than a few weeks doing regular tasks.
• The only internships that reliably pass are ones tied to an academic program with real supervision by the school and very clear educational objectives (e.g., a nursing clinical, teaching practicum, or accredited co-op program).

Consequences of Getting It Wrong

• Back minimum wage + overtime for all hours worked
• Liquidated (double) damages
• State penalties (e.g., California waiting-time penalties, PAGA claims)
• Typical settlements or judgments range from $3,000–$25,000 per misclassified intern.

Bottom Line

For almost all for-profit companies (especially startups), the safest and legally cleanest route in 2025 is simply to pay interns at least minimum wage (and overtime if over 40 hours). Trying to thread the 7-factor needle usually fails and creates large liability.