Hiring an intern at your company is a great way to give a college student or new professional some hands-on experience in your industry.
Companies often hire interns to do lower-level work in exchange for the opportunity to get a foothold into a new industry and learn from behind the scenes.
However, many companies have historically hired interns on an unpaid basis in order to save costs on jobs that would otherwise go to entry-level employees.
Though very common, the practice of employing unpaid interns may actually violate state and federal labor laws.
Update: Hiring interns is such a popular subject, we've built a more in-depth guide on navigating the process legally. You can download it for free here.
Here's how to hire interns, the legal way.
The Law on Unpaid Interns
Under the Fair Labor Standards Act (FLSA), most interns in the for-profit private sector will be considered employees that are subject to the FLSA’s minimum wage and overtime requirements. However, if an intern is not an employee within the meaning of the FLSA, then the FLSA’s minimum wage and overtime requirements do not apply.
The U.S. Department of Labor (DOL) applies a six-factor test (outlined below) to determine whether an intern for a for-profit private sector business is considered an employee for purposes of the FLSA.
Experts estimate that up to 50% of the 1.5 million internships in the US this year will go unpaid.
Not all federal courts rely on the DOL’s six-factor test, however. And different requirements may also exist under state and local wage and hour laws.
Lastly, keep in mind that the DOL’s test only applies to for-profit businesses. Unpaid internships in the public sector and for non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible.
The DOL’s Six-Factor Test for Unpaid Interns
Under the DOL’s test, an employment relationship does not exist under the FLSA if all of the following factors are met:
- The internship must be similar to training that would be given in an educational environment;
- The internship must be for the benefit of the intern;
- The intern does not displace regular employees, but works under close supervision of existing staff;
- The employer derives no immediate advantage from the intern; and on occasion its operations may actually be impeded;
- The intern is not necessarily entitled to a job at the end of the internship; and
- The employer and intern understand that the intern is not entitled to wages for the time spent in the internship.
Hiring unpaid interns can be risky. Learn how to hire interns the legal way.
In addition to the DOL’s six-factor test, some states, including New York, have other internship requirements that must be met to remove an intern from state wage and hour protections. Be sure to evaluate the requirements under applicable state and local laws before implementing an unpaid internship program.
Related article: 9 Simple Tips for Hiring Interns Legally
Former Unpaid Interns Suing Employers
In the past few years, some high profile class-action lawsuits have been brought against companies by former unpaid interns.
For instance, in 2015, Mary-Kate and Ashley Olsen’s company Dualstar Entertainment Group saw a class-action lawsuit filed by over 40 past and present interns. The suit accused the company of failing to pay interns and expecting demanding, long schedules.
Laura O'Donnell, a lawyer at Haynes & Boone in San Antonio who represents management in labor disputes, warns that “this trend is probably going to expand beyond media companies and beyond New York. I think employers in all industries across the country need to take note."
Protect Your Company
If you’re planning on implementing an internship program at your company, you should consult with legal counsel to ensure compliance with all applicable laws and regulations.
When in doubt about internship regulations, it’s probably best to classify interns as employees and pay them as required under applicable federal, state, and local law.
These days, it pays to be cautious. When in doubt, be sure to consult a lawyer.
If you're a Justworks customer, we can provide guidance and best practices with respect to setting up an internship that’s beneficial to both you and your hires. Reach out to our support line at (888) 534-1711 or directly to HR Concierge.
This content is for informational purposes only and is not tax or legal advice.