The Legalities of Unpaid Interns
Are you considering adding an intern to your company? The allure of young, inexpensive and eager workers is hard to deny when you’re busy and spread too thin. Interns can be a great asset to your business, but it’s important that you understand the restrictions and restraints imposed by the government on the hiring of interns.
The myth perpetuated for many years was that interns can work for free if they choose to do so, especially if they are earning college credit for their internship. If they are eager enough to gain the experience, then why not let them make that choice? Well, the federal and state governments disagree.
The federal government has defined six strict criteria that for-profit employers must satisfy in order to offer an unpaid internship:
- The training given in the internship must be similar to what would be given in an educational setting or vocational school;
- The training is for the benefit of the trainee;
- The trainee does not displace regular employees, but works under their close observation;
- The employer that provides the training derives no immediate advantage from the activities of the trainee, and on occasion the employer’s operations may actually be impeded;
- The trainee is not necessarily entitled to a job at the conclusion of the training period; and
- Both the employer and the trainee understand that the trainee is not entitled to wages during the training period.
main takeaway is that it is very hard for a for-profit employer to meet the
requirements necessary to engage unpaid interns. Requirement number four is
particularly hard to satisfy, since the company cannot receive any direct
benefit from the work done by the unpaid intern. If you decide that unpaid internships are right for your company, you need to be sure that you run your internship program like a training program in your specific industry or profession and do not have your interns doing "grunt" work (stuffing envelopes, running errands) or making coffee. And it is particularly important that you use a written contract when your intern begins working with you (or if you have an unpaid intern already working for you, you should have them sign a written contract now if they have not already). A proper contract will clearly state the terms and conditions of the intern's engagement by your company and make it clear that the contractor is not an employee or independent contractor, which is an important part of defending yourself against allegations of misclassification and potential audits by the state or federal government.
the stringent requirements, many businesses continue to improperly use unpaid
interns because the opportunities for young, relatively
inexperienced workers are scarce and many people are willing to work for free in order to improve their resumes, even if they are only performing menial tasks. These same workers are unlikely to report their employer for violating the law because they are either unaware of their rights or don't want to jeopardize their position with the company.
Labor Department says there has been an increased crackdown on the
of businesses to pay interns properly, there is little specific statistical
evidence or information available to the public. However, I've recently crossed paths with a number of
event industry professionals whose businesses have been audited for
employment-related issues, and they were each eager to spread a
cautionary word to fellow event professionals about the severe stress and financial expense of an employment-related audit.
Furthermore, aside from the potential for illegality, perpetuating unpaid internships does a disservice to those individuals who cannot afford to work for free at a position that offers them the kind of targeted experience and skills they hope to gain. Making your internships paid, even if it’s just minimum wage, may make the difference to open the doors to deserving and eager interns who otherwise may never have had such an opportunity.
Of course if you’re paying your intern, even if it’s just minimum wage, you’re now faced with the numerous requirements related to employers, like payroll, tax withholdings, workers' compensation insurance and additional taxes. If you have no other employees, you may be thinking that an independent contractor status for your paid intern will be the way to go in order to skirt these requirements, but don’t get too excited about that idea. We will cover the stringent requirements related to independent contractors in the next post.