TEXAS BUSINESS LAW
Can a Texas Company Have Unpaid Interns? FLSA Rules
Yes — a Texas company can have unpaid interns, but only if the intern, not the company, is the “primary beneficiary” of the arrangement under the federal Fair Labor Standards Act (FLSA). The U.S. Department of Labor adopted a seven-factor primary beneficiary test in January 2018 (Fact Sheet #71), and it remains the governing standard today. Texas adds no separate intern statute, so the federal test is the whole analysis. Get it wrong and your “intern” is legally an employee owed minimum wage and overtime going back two years — three if the violation was willful — usually doubled by liquidated damages, plus your intern’s attorney’s fees.
Here is the test, what Texas law adds (nothing stricter), what misclassification actually costs, and a checklist for running a compliant program.
The Primary Beneficiary Test: Seven Factors
The primary beneficiary test asks who gets more out of the relationship — the intern or the business. Courts and the DOL weigh seven factors; no single factor decides the question, and the analysis turns on the economic reality of each arrangement:
| # | Factor | What it asks in practice |
|---|---|---|
| 1 | No expectation of compensation | Do both sides clearly understand the position is unpaid? Any promise of pay — express or implied — points to employment |
| 2 | Training like an educational environment | Does the intern receive hands-on training similar to what a school or clinic would provide? |
| 3 | Tie to formal education | Is the internship integrated into coursework or taken for academic credit? |
| 4 | Accommodates the academic calendar | Does the schedule bend around classes and the school term, or around the company’s staffing needs? |
| 5 | Limited duration | Is the internship limited to the period in which it actually provides beneficial learning? |
| 6 | No displacement of paid employees | Does the intern’s work complement — rather than replace — paid staff, while the intern receives significant educational benefit? |
| 7 | No entitlement to a job | Do both sides understand the internship ends without any promise of paid employment? |
The more your program looks like a course with a workplace attached, the safer it is. The more it looks like a junior employee working for free — covering a vacant role, doing the same production work as paid staff, scheduled around business needs — the more likely a court finds an employment relationship.
Before 2018, the DOL used a rigid six-part test under which every element had to be satisfied. Federal appeals courts rejected that approach, and the DOL formally replaced it with the flexible balancing test above. Older guidance describing the all-or-nothing test is obsolete — but the modern test is not a loophole; factor six still sinks most abusive programs.
Texas Adds No Stricter Rule
Texas has no state statute specifically regulating internships. The Texas Minimum Wage Act expressly exempts anyone covered by the FLSA, and the Texas Workforce Commission follows the federal analysis for trainees and interns. The Texas minimum wage is tied to the federal rate — currently $7.25 per hour. Practically, that means a Texas company faces one test, not two: satisfy the federal primary beneficiary test and you have satisfied Texas law as well.
What Misclassification Costs
If an unpaid intern is found to be an employee, the FLSA’s remedies apply just as they would for any unpaid worker:
| Exposure | Detail |
|---|---|
| Back wages | Minimum wage for all hours worked, plus time-and-a-half for hours over 40 per week |
| Lookback period | 2 years from filing; 3 years if the violation was willful (29 U.S.C. § 255) |
| Liquidated damages | An additional amount equal to the back wages — effectively doubling the award — unless the employer proves good faith and reasonable grounds |
| Attorney’s fees and costs | Awarded to a prevailing employee on top of damages |
| Collective actions | One misclassified intern can bring claims on behalf of every similarly situated intern in the program |
A “willful” violation means the employer knew its conduct violated the FLSA or showed reckless disregard for whether it did — and running an unpaid program without ever checking the seven factors is the kind of fact pattern that invites the argument. The DOL’s Wage and Hour Division can also investigate and recover back wages without any intern filing suit.
The Nonprofit and Government Exception
Volunteers are different from interns. The FLSA permits individuals to volunteer their time, without expectation of compensation, for public agencies and for nonprofit organizations in a charitable, civic, humanitarian, or religious capacity. So an unpaid internship at a Texas city office, state agency, church, or 501(c)(3) charity generally doesn’t raise the same wage exposure — provided the person truly volunteers freely and isn’t displacing paid staff.
For-profit companies get no such exception. A private business cannot accept “volunteer” labor; for a for-profit employer, an unpaid worker is either a lawful intern under the primary beneficiary test or a misclassified employee.
Compliance Checklist for a Texas Internship Program
- Put it in writing. A signed internship agreement stating the position is unpaid, educational, of fixed duration, and carries no promise of a job addresses factors 1, 5, and 7 before the internship starts.
- Connect it to school. Partner with a college or university so interns earn academic credit, and schedule around the academic calendar (factors 3 and 4).
- Build a curriculum, not a job description. Define learning objectives, assign a mentor, and structure the work as training (factor 2). If the role description reads like a posting for a paid position, that’s the problem.
- Never backfill with interns. Don’t use interns to cover departed employees, staff shortages, or routine production work that paid employees would otherwise do (factor 6 — the factor that decides most cases).
- Set an end date and keep it. Open-ended unpaid arrangements undercut factor 5.
- When in doubt, pay. $7.25 an hour is cheap insurance against a doubled FLSA judgment plus fees. Many Texas companies simply run paid internships and skip the analysis entirely.
Frequently Asked Questions
Are unpaid internships legal in Texas?
Yes, when the intern is the primary beneficiary of the relationship under the DOL’s seven-factor test — typically a structured, school-connected, time-limited training experience. Unpaid arrangements that function like ordinary jobs are illegal regardless of what the position is called.
Do all seven factors have to be satisfied?
No. The primary beneficiary test is a flexible balancing test; no single factor is decisive. But a clear written agreement, an educational structure, and no displacement of paid workers carry the most weight in practice.
Can a for-profit company use volunteers instead?
No. The volunteer exception covers public agencies and nonprofit charitable organizations. A for-profit business that accepts free labor has an employee or a lawful intern — nothing in between.
How far back can a misclassified intern sue?
Two years from when the claim is filed, or three years for willful violations, with liquidated damages typically doubling the back-pay award.
Does Texas have its own intern wage law?
No. Texas follows the FLSA — the Texas Minimum Wage Act exempts FLSA-covered workers and adopts the federal $7.25 minimum wage, so the federal primary beneficiary test is the only test that matters.
If you’re building an internship program or worried the one you have wouldn’t survive the seven-factor test, Reidel Law Firm advises Texas companies on Texas business law and employment compliance for a flat fee quoted upfront — no retainers, no hourly surprises. Contact us before the Department of Labor does the audit for you.
