This blogpost is a supplement to our webinar on how to track employee hours.  If you would like a copy of that presentation, please contact Alice Rhodes.
Unpaid internships are popular across the country, providing benefits for companies and valuable experience for college students or recent graduates. However, due to guidelines released by the Department of Labor (DOL) in 2010, many internships in the for-profit, private sector are no longer compliant with federal law. A common misconception exists that if a student is willing to work for free to get industry experience, then there’s no harm in taking advantage of it. Unfortunately, this practice will now leave many employers open to substantial legal liability. Make sure your unpaid internships meet DOL standards to avoid significant penalties.
DOL Guidance
The 2010 guidance addresses unpaid internships under the Fair Labor Standards Act (FLSA), clarifying the determination of whether an intern is considered an employee (subject to minimum wage) or a trainee (legally eligible to perform unpaid work). These guidelines apply to for-profit, private sector employers. Unpaid internships in the public sector and for non-profit charitable organizations are generally permissible under the FLSA.
To determine whether an intern can be considered a trainee, the DOL lists six criteria that the internship must meet.

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training that would be given in an educational environment.  This can often be satisfied by having a student’s university sponsor and oversee the internship and offer course credit for its completion.
  2. The internship experience is for the benefit of the intern.
  3. The intern does not displace regular employees, but instead works under the close supervision of existing staff.  If the intern is working under the same supervision as regular employees, then the internship likely does not satisfy this condition.
  4. The employer providing the training derives no immediate advantage from the activities of the intern and, on occasion, the employer’s operations may actually be impeded.
  5. The intern is not necessarily entitled to a job at the conclusion of the internship and the internship is for a fixed time period.  Though an incidental job offer at the conclusion of the internship is acceptable, the employer is generally not allowed to use unpaid internships as a “trial period” for potential future employees.
  6. The employer and intern understand that the intern is not entitled to wages for the time spent in the internship.

If all of these conditions are met, then an employment relationship does not exist under the FLSA and an unpaid internship is legally permissible. The DOL has issued a fact sheet on this topic.
Penalties
Employers who are not in compliance with the DOL regulations face legal exposure, including penalties from the government and potential lawsuits. Penalties can include owing back pay, taxes not withheld, Social Security, unemployment benefits, interest, attorneys’ fees and liquidated damages (double the unpaid wages).
Compliance Tips
The following strategies can help your company’s unpaid internships maintain compliance with federal law and meet the six criteria established by the DOL.

  • Work with the student’s university. The school will often sponsor the internship and may offer the student course credit. Coordinating with a university can help ensure that the internship is providing the necessary training to make it an educational experience for the studentMake sure the intern is learning skills that are applicable in multiple job settings, rather than being specific to your company.
  • Consider allowing interns to observe various aspects of your company’s operations (for example, job shadowing) without always needing to engage in work.
  • Make clear before the internship begins what the responsibilities and expectations will be, that the internship is unpaid and that there is no expectation of a job offer once the internship is over. Keep records of these written expectations along with any other documentation that describes what the intern does, what training is available, what type of supervision is provided, etc.
  • If the internship program causes any disruption to your company or represents a time commitment for any of your employees, this should be documented as well. An unpaid internship that satisfies the DOL’s requirements should actually be somewhat of a drain on the employer due to the time put in for training and the lack of production coming from the intern.

 
If your company has unpaid interns, it is essential that you familiarize yourself with the DOL guidelines and make sure your program is in compliance as it could be costly for your company to get caught not complying.
AUI works hard to be a trusted source for compliance information surrounding employee benefits.  For more information about how we can help your business or if you have additional questions, please contact us!