Pitfalls of Unpaid Internships: Why Employers Should Pay Interns.

By | April 26th, 2013 | General

The history of internships began centuries ago when medical students were required to observe doctors at work in order to gain practical knowledge. Over the last few decades, internships have been used in almost all industries. Most often, interns are college students and are hired during the summer months.

In the United States, only about one third of internships are paid. However, simply classifying someone as an “intern” does not always allow an employer to not pay him/her. Federal and state labor departments have high standards employers must meet before they may allow an intern to work for free. We have seen both a rise in government scrutiny of unpaid internships and more lawsuits by interns against employers for unpaid wages. One of the most well-known lawsuits is Glatt, Footman, et. al. v. Fox Searchlight Pictures, Inc., brought by some interns who worked on movie projects such as “Black Swan” and “500 Days of Summer”.

Recall that, as a basic rule, the Fair Labor Standards Act (FLSA) requires employers in the “for-profit” private sector to pay their employees the minimum wage and overtime for hours worked over 40 per week. So how then can you have an intern work for you without pay? The Department of Labor (DOL) to help guide employers in deciding whether an individual is an “employee” or a true “intern” and therefore exempt from wages. Those factors include:
1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment:- An employer must be providing educative opportunities during the internship.
2. The internship experience is for the benefit of the intern: – Employers may be exposed to legal complications when they have unpaid interns whose duties solely benefit the company.
3. The intern does not displace regular employees, but works under close supervision of existing staff: – Due to the economic challenges facing the nation, it has become a common occurrence for employers to have interns conduct the job functions of entry-level positions within the organization. Such interns must be paid to avoid legal consequences against the employer.
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: – An internship is distinguished from regular employment because of the learning opportunity it is supposed to provide. If an employer makes significant profit as a result of the work conducted by the intern, it would not be considered “for the benefit of the intern” but rather for the employer.
5. The intern is not necessarily entitled to a job at the conclusion of the internship: – This is a common misunderstanding between employers and interns. It is important that an employer states clearly to an intern before the internship begins that the intern is not entitled to a job at the conclusion of the internship.
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship: – Employers must inform the intern of all the duties and experiences that would be involved during the internship period and discuss the lack of compensation. It is seriously recommended that this understanding be memorialized in a writing signed by both parties.

Some additional recommendations for employers to “tip” the balances of the above analysis in favor of an unpaid internship include:
A. Hire interns that are actually enrolled in a college or university and work with the interns and the college/university to allow the intern to receive college credit for participation in the internship program. This may satisfy the educational component of the DOL factors.
B. Provide job-shadowing opportunities and rotate the intern(s) between various departments within the organization under the close and constant supervision or regular employers.
C. Document the terms and conditions of the unpaid internship before the beginning of the experience! Also, prepare a memo and document all other communications to managers of departments within the organization explaining the purpose of the intern program and verifying that the unpaid interns are not meant to supplement their workforce, much less replace existing employees.

As for non-profit organizations, unpaid interns must be considered “volunteers”. To fit these criteria, nonprofits must have “volunteers” read and sign a description that clearly states the internship as a volunteer position. This description must avoid ambiguity which could create risk that the nonprofit cold be liable to back wages and penalties for failing to withhold taxes. It is also important to have an understanding of the State’s laws governing wages and hours to know if an intern falls under the “volunteer” category in the state.

For further assistance or questions about internships and your organization, please contact the Employers Legal Resource Center at (405) 702-9797.

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