Interns - To Pay Or Not To Pay?

It is that time of year again -- graduate, college, and high school students are flooding your email inbox seeking real-world experience. Students volunteer to work without pay to get a better idea of a profession or an industry before taking on a lengthy and expensive course of study. You are not planning to hire this summer, but decide that you can permit a student to come in for several weeks, gain experience, and build her resume. But will this good deed go unpunished?

The United States Department of Labor (DOL) just might characterize your attempt at a good deed as a violation of the Fair Labor Standards Act (FLSA). The FLSA is the federal statute that governs minimum wage and overtime pay. Under this statute, all covered and non-exempt individuals must be paid at least minimum wage for all hours worked. Employees cannot waive their rights under the FLSA, therefore they cannot generally volunteer to work without compensation.

There are, however, situations under which individuals who participate in for-profit private sector internships or training programs may do so without compensation. According to the DOL, interns in the for-profit sector will most often be viewed as employed, unless all six factors of the test below are met:

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar training which would be given in an educational environment;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

See DOL Fact Sheet #71 

If all six factors are met, an employment relationship does not exist under the FLSA, and the minimum wage and overtime requirements do not apply. Unpaid intern suits have been on the rise in recent years. Former interns have sued large companies, including Fox Searchlight Pictures, Hearst Corporation, NBC Universal and CBS Corp., for unpaid wages. Some interns have won, and many companies have paid to settle disputes. Now is the perfect time to reexamine your internship programs. For example, consider implementing policies and practices geared toward training and supervising interns to create a program that qualifies under the test above. Avoid the mistakes made by many companies. Evaluate what you want from an intern before hiring. Put the appropriate procedures in place to avoid a wage and hour lawsuit.

Spotts Fain publications are provided as an educational service and are not meant to be and should not be construed as legal advice. Readers with particular needs on specific issues should retain the services of competent counsel.


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