When it comes to recruiting and hiring interns, your company could find itself in trouble if it doesn’t comply with federal, state, and local wage and hour laws. Famous figures from Oprah to the Olsen twins have faced class-action lawsuits from unpaid interns.
Learn from these moguls’ experiences to avoid similar encounters with your internship program. Read on to find out how you can help keep your company safe, and hire some great interns along the way.
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How to Hire Interns Legally
You don’t only want your intern to have a positive experience with your company — you want to protect yourself from potential legal battles as well. This advice will help show you what internship regulations to keep an eye out for.
Distinguish Between For-Profit and Non-Profit
If you’re a non-profit charitable organization or in the public sector, interns may count as volunteers, in which case they don’t need to be be paid.
However, if you’re a for-profit business, not paying interns may be a more difficult case to argue. The DOL uses a seven-factor “primary beneficiary test” to determine whether an intern working for a for-profit employer is an employee under the Fair Labor Standards Act (FLSA), in which case they're entitled to minimum wage and overtime pay under the FLSA.
Review the DOL’s Primary Beneficiary Test
The FLSA requires for-profit employers to pay employees for their work. However, there are circumstances under which an interns are not considered employees under the FLSA and therefore don’t need to be paid. The DOL applies the primary beneficiary test to determine whether an intern is, in fact, an employee for purposes of the FLSA. The test includes seven factors:
- The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee — and vice versa.
- The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
- The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
- The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
- The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
- The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
- The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
The DOL will review each case individually, and the test is a flexible test, with no single factor being determinative.
Not all federal courts rely on this test, however. And different requirements may also exist under state and local wage and hour laws. It may be best to check in with legal counsel before implementing an unpaid internship program to ensure the program doesn’t run afoul of the FLSA and applicable state and local wage and hour laws.
Consider Not Hiring Interns
If you’re concerned about legal snares, you might weigh your options of not hiring interns at all. It may sound like an extreme decision, but it’s also a safe one. You can avoid the to-pay-or-not-to-pay intern conundrum by simply doing away with the practice altogether at your company.
Hiring unpaid interns can be risky. Learn key legal considerations around recruiting and hiring interns.
Weigh Your Options
Companies that can’t afford lots of paid interns still have options. You can hire fewer interns, for instance. You can also consider scaling back their hours. Whatever you decide, be sure to check federal, state, and local law for the applicable minimum wage and overtime requirements.
Lastly, keep in mind that many interns become full-time employees down the road. Consider the higher costs of recruiting a new full-time employee with that of hiring a past intern who’s already familiar with your company — the latter could save you money in the long run.
All told, think creatively about how you can pay your interns appropriately while working within your budget.
Be Clear About Expectations in Advance
Before you begin recruiting, make sure you have these details worked out and posted clearly on the internship description:
- School credit
- Selection and performance criteria
- Internship lengths
Write a job description that explicitly maps out the duties and projects associated with the internship, so that both you and the future intern will have clarity on what’s expected.
Cover Interns Under Workers’ Compensation
Remember that you may be required to provide workers’ compensation coverage to your interns, both paid and unpaid. Employers’ obligations and employees’ rights to receive workers’ comp are largely governed by state law.
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If your company is for-profit, hiring interns without formal compensation is a risky choice at best. Play it safe by consulting legal counsel and offering an internship that will hold up to legal scrutiny. Ultimately, having an intern can act as a great launching pad for someone just starting out, and may add some fun to the office too.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.