Could Your Unpaid Intern Be More Expensive Than You Thought?

It’s springtime, and that means high school and college students are applying for summer internships in large numbers.  If you are planning to hire an unpaid intern, you must be certain the intern is not an “employee” under state or federal labor laws.  Otherwise, you will be required to pay minimum wage and overtime.

Many, many companies fail to follow the rules on internships, often out of ignorance.  For decades, these illegal internships have largely been ignored by the government.  But the Obama Administration is the administration of enforcement, and the Department of Labor has begun cracking down on unpaid internships.

If your company is for profit, there are six criteria for hiring unpaid interns:

1. The intern must receive training and the training  is similar to what would be given in a vocational school or academic educational instruction;
2. The training is for the benefit of the trainees;
3. The trainees do not displace regular employees, but work under their close observation;
4. The employer derives no immediate advantage from the activities of the trainees, and on occasion the employer’s operations may actually be impeded;
5.  The trainees are not necessarily entitled to a job at the conclusion of the training period; and
6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.

Merely offering educational credit is not enough, although some states require educational credit as an additional criterion for an internship to be unpaid.

Even non-profit organizations can be liable for failing to pay interns.  Unpaid internships at non-profits are generally permissible, but the intern cannot displace paid employees and the intern must know he or she will not be paid.  Offering any compensation, such as stipends, may transform the intern into an employee entitled to minimum wage and overtime, so be consistent in your treatment of the intern as a volunteer.

Now is the time to consider whether your internship program meets state and federal criteria.  If it does not, you must pay your intern or redesign the program.  Even if your company or your industry has always used unpaid interns before, you must independently assess whether your internship program meets with state and federal criteria to be unpaid. 

Brody and Associates regularly advises management on complying with the latest state and federal employment laws.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.965.0560