Interns can be a great resource for a small company. Equally, interns gain invaluable working experience and contacts in their fields. In fact, internships have often led to permanent employment. While interns may be high-value, cost effective talent, they should not be treated as cheap labor. More importantly, business owners have to be very careful about using free labor–unpaid interns.
There has been a tremendous amount of attention given to this topic with the U.S. Department of Labor and some states cracking down on wage abuse. For the first time, the U.S. Labor Department has gotten involved in a high-profile lawsuit brought by unpaid interns, ProPublica’s Kara Brandeisky reports, filing an amicus brief last week in support of former interns suing Hearst Corporation for back wages.
In the brief, The Labor Department expresses particular concern that the sluggish economy has made “the promise of free labor … both tempting and available,” allowing unpaid internships to proliferate. As the federal agency responsible for enforcing minimum wage law, the Labor Department has developed a six-part test that explains when for-profit employers must pay their interns.
Hearst Corporation responded to the lawsuit by saying its internships are “designed to enhance the educational experience of students … and are otherwise fully in compliance with applicable laws.”
The Hearst case is one of at least 20 lawsuits filed by former interns in the past several years. Unpaid interns who worked on the movie “Black Swan” scored the first real victory last summer, when a federal judge ruled Fox Searchlight Pictures had violated minimum wage laws by not paying them.
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Moreover, certain states like Oregon, California, and New York are more proactive with enforcement of labor laws.
So what’s the best way to ensure your internship program–paid or unpaid–complies with labor laws? According to AOL Small Business, here are five things you need to know.
1. Know the Department of Labor’s six legal criteria.
Many employers don’t realize this, but all six criteria must be met for the intern to be considered a “trainee” and not an actual employee under the Fair Labor Standards Act. The training should directly benefit the intern; the intern must not displace actual employees, and the employer should see no immediate benefit from the intern’s work. The core guiding principle is to provide relevant hands-on experience.
SBA.gov offers the following examples: Unpaid interns cannot do any work that contributes to helping you run your business, like documenting inventory, filing papers, answering emails, etc. Unpaid interns can shadow other employees and perform duties that don’t have a business need. For example, a bakery may allow an apprentice/intern to decorate a tray of cookies that will not be sold to customers. Because the task was only a training exercise for the apprentice/intern and the bakery did not receive any benefit from that work, the bakery would not have to pay that student worker for that time.
2. Determine whether the internship should be paid or unpaid.
Once you know and understand the criteria, it’s time to take a closer look at the internship and evaluate the legalities of it. Even if you come to the conclusion that the internship should continue as unpaid, your business should compensate for the work. The best candidates are the same go-getters who start early and secure paid opportunities. Not paying also cuts off the increasing population of students who simply cannot afford to work for free.
3. Weigh the pros and cons.
Compensating your interns can actually affect your company in positive ways. Paying students motivates them to do good work. Also you run the risk of managers who underutilize or devalue unpaid interns. Are those who work with an intern as likely to utilize one who is unpaid as well as one who is? Will an unpaid intern remain motivated enough to do their best work?
4. Focus on the training aspect.
Remember that the goal of an internship is training a promising, hard-working student, not getting free labor. Employers have an obligation to train. While offering compensation might make it easier to comply with the law, you don’t necessarily have to if you meet the six criteria. If unpaid, the employer has that much more of an obligation to incorporate training efforts.
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5. When in doubt, consult a lawyer.
Improper classification of an intern can be a costly mistake for a small business. If you have questions or you’re not completely sure, check out the Department of Labor website or consult with an experienced labor and employment attorney.
If you definitely feel you want to go the unpaid route consider such options as working with colleges and universities that actually bear the responsibility for compensating student interns. Many schools operate internship programs through their career services offices (in exchange for student credits). Getting registered with one of these programs can provide a level of accreditation as well as access to a pool of motivated and screened talent.
DOL’s Test for Unpaid Interns
The following six criteria must be applied:
- 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;
- The internship experience is for the benefit of the intern;
- The intern does not displace regular employees, but works under close supervision of existing staff;
- 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;
- The intern is not necessarily entitled to a job at the conclusion of the internship; and
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.