Summer Internships – To Pay or Not To Pay? That is the Question!
Are you counting on unpaid student Interns to cover staff Summer vacations? The opportunity to save $$$ while giving students a chance to learn new skills may seem attractive, but you may be breaking the law.
There is no question internships are growing in popularity. Why? Many companies can save money by hiring interns at low wages to do unpopular administrative jobs. An internship gives a student experience that makes him or her a more attractive job candidate after graduation. While there are benefits on both sides to an unpaid internship, here’s how to play it safe with payroll, AND protect your business, but still give that student a chance to gain valuable experience.
Recent intern lawsuits, like the one relating to the Olsen Twins** and their clothing company “The Row” in 2015, resulted from the employer’s misunderstanding of federal minimum wage requirements and overtime regulations under the Fair Labor Standards Act (FLSA) and current Department of Labor (DOL) rules.
Learn from the mistakes of others. In order not to violate state and federal minimum wage laws as well as the FLSA, unpaid internships must have educational value, must be of benefit to the intern and not displace your other employees. There must be no guarantee of a job at the conclusion of the internship, and both the employer and intern must have a very clear understanding that no wages (or in-kind compensation) will be paid for the time spent in the internship. The DOL actually has a list of criteria that must be met by a “for”-profit business to be able to classify a worker as an unpaid intern rather than an employee entitled to a paycheck.
The seven elements in the DOL’s Primary Beneficiary Test for Unpaid Interns are:
- 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 — and vice versa.
- The extent to which the internship provides training that would be similar to that 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.
Please note that when dealing with a non-profit, religious or charitable organization, interns may count as volunteers rather than employees in which case they do not have to be paid (some restrictions do apply). Remember that employers may be required to provide workers’ compensation coverage to their interns, both paid and unpaid. Employers’ obligations and employees’ rights to receive workers’ comp are largely governed by state law.
Best practices include having clear expectations in advance regarding the Intern’s duties, school credits, schedules and performance goals. Keep in mind that good paid interns can become great full-time employees down the road. Consider the higher costs of recruiting a new full-time employee with that of hiring a past intern who’s already familiar with your company and well trained — it might save you money in the future!
Of course there are always exceptions to any rule when dealing with the government, but our two top tips for employers are:
- Consider paying interns the minimum wage, limiting their work hours and complying with all applicable federal and state employment laws.
- If you do proceed with an unpaid internship program make sure it has a strong educational component, and the value is largely for the student rather than of benefit to the company. A perfect example would be for the employer to allow the Intern to job shadow higher level employees or be mentored by executives in leadership positions.
**(https://nypost.com/2017/03/28/unpaid-internships-might-be-over-thanks-to-the-olsen-twins/)