Can Our Company Have Unpaid Interns?

Find out when employers must pay their interns.

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Does your company have an internship program? These days, when there are more applicants for entry-level positions than there are jobs, some employers have taken to hiring unpaid interns. This gives new workers a chance to learn the ropes and get some experience, while the company gets free labor and an opportunity to scout the best potential hires. It's a win for everyone, right? 

Not quite. The basic premise of federal labor laws is that workers should be paid for their labor. As a result, the rules around unpaid internships are very restrictive. Private employers can offer unpaid internships only when the experience is truly educational and requires some time and effort on the part of the employer. Otherwise, employers must treat their interns like employees and comply with all of the same wage and hour laws.

What Is an Intern?

An intern is a type of temporary worker, usually a student or person who is new to the field, who takes an internship position to learn what the job is like and get some hands-on experience. Internships are common in both the public and private sectors. However, while federal laws typically allow government and nonprofit employers to have unpaid interns, the rules are very different for private, for-profit employers.

For an internship to be unpaid, it must meet certain requirements under the law. Labeling a worker as an “unpaid intern” – even with the worker’s consent – is not enough for employers to avoid their wage and hour obligations. In general, an unpaid internship must be primarily for the benefit of the intern. This means that the intern shouldn’t be performing work that benefits the employer. If an intern spends the majority of his or her time running errands, contributing to work product, or dealing with customers, he or she will probably be seen as an employee. On the other hand, a worker who is simply shadowing a regular employee, for school credit, will more likely be seen as an intern.

The Department of Labor's Six-Part Test

The federal Department of Labor looks at six factors to determine whether a true internship exists (meaning the intern is not legally considered an employee entitled to minimum wage and overtime). Generally, these factors are intended to uncover whether the internship is a benefit to the intern or to the employer:

  • The internship must be similar to training that would be provided in an educational environment. An internship that centers on an academic experience is more likely to meet this test. The same goes for one that trains the intern for multiple employment settings rather than just to do the work of the employer.
  • The internship must be for the benefit of the intern. The more the business depends on the work of the intern, and the more time the intern spends on routine, regular work of the business, the more likely the intern will be considered an employee.
  • The intern must not displace regular employees and must work under close supervision of existing staff. A company that is using interns instead of regular employees (either because it has let employees go or put off hiring) is likely to be seen as trying to avoid its wage and hour obligations. Similarly, if an intern receives the same supervision as regular employees, that indicates an employment relationship. .
  • The employer gets no immediate advantage from the intern’s work—and may, on occasion, find its operations impeded by the internship. When an employer provides an intern with extra training, special learning opportunities, and additional supervision and guidance, this is more likely to be seen as a true internship.  
  • The intern is not necessarily entitled to a job once the internship ends. An internship that is actually a trial period, the successful completion of which will lead to a job, will be considered regular employment.
  • Both employer and intern understand that the intern is not entitled to wages for time spent in the internship. In other words, no bait and switch is allowed. If the intern was led to believe that he or she would be paid, the company must make good. (However, the opposite is not necessarily true. Just because an intern agrees to work for free doesn’t mean that it’s a legal unpaid internship.)

Reviewing Your Policies

Before hiring that summer intern, you may want to review your internship program and consider what the intern will do on a daily basis. Misclassifying employees as interns can lead to large wage claims, especially if you hire interns on a regular basis. Interns who are misclassified are entitled to receive unpaid minimum wage, overtime, and other wages and benefits that they were denied. 

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