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To pay or not to pay interns? The feds are cracking down

04/13/2010

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With fewer real, paying jobs available to young people, the number of unpaid internships is on the rise. Now the U.S. Department of Labor and many state labor departments (including California) are stepping up enforcement against employers who illegally use internships for free labor.

The DOL says many employers fail to pay even though the internship doesn’t meet the six federal criteria that must be satisfied for an internship to be legitimately unpaid (see below).

Receiving school credit doesn’t necessarily free companies from paying interns.

If an intern secures education, class credit and experience from working at your company, the “flow of benefits” is equal, so your company usually isn't required to pay the intern.

But if you profit too much from the arrangement, federal law says this would suggest an employment relationship, meaning your intern must be paid.

Advice: To avoid paying student interns, know the Labor Department rules regarding the Fair Labor Standards Act (FLSA). They say interns must be paid at least the minimum wage if the program doesn”t meet the following “learner/trainee” rules:

  • The training must be comparable to that given at a vocational school.
  • The training must benefit the student.
  • The student would not replace a regular employee.
  • The employer does not immediately benefit from the student's activities.
  • There is no promise of a job following the training.
  • Both the employer and the student understand that no wages will be given for the training period.

NOTE: In April 2010, the U.S. Department of Labor published "Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act" that helps clarify for-profit, private-sector employers' obligations to interns under the FLSA.

Hiring interns: The 4 steps to keeping it legal

Courts view interns the same as employees: as “agents” of your organization. So should you.

If you use interns or plan to, advise supervisors to manage them as closely as employees, if not more so. And apply your workplace policies to them.

Reason: Your organization can be held responsible for the actions of anybody, including unpaid interns, while they perform work for you. The activities of interns are under the employer’s control, not the school’s.

Some courts have ruled that employment-discrimination laws don’t apply to unpaid interns. But that doesn’t mean you can allow intern harassment. In fact, interns may be able to pursue claims under Title IX, which bans sex bias in education programs.

Also, if your intern program reaches out to high schoolers, remember to follow federal child labor laws. For further details, visit www.dol.gov/dol/topic/youthlabor, and check your state’s child labor laws.

To help structure a legally sound intern program, follow these four steps:
  1. Define supervisory roles and supervisor/intern evaluations. Reliable supervision is the key to preventing problems, including injuries, discrimination and poor performance. Make sure all supervisors know who oversees each intern’s work.
  2. Draft an intern policy. It can reduce misunderstandings that can lead to lawsuits. The policy should define the program, such as compensation structure (or the fact that interns won’t be paid), eligibility requirements and the intern’s at-will status. Never imply the promise of employment.
  3. Pick up formal documentation from the intern’s school that explains the educational relevance of the internship if the student will earn credit.
  4. Ask whether the school provides liability insurance to cover any damage caused by a student. Many schools carry it. If your organization carries employment-practices liability insurance, see if it extends to interns.

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